(Bloomberg) — A slowdown in outflows from the $20 billion Grayscale Bitcoin Trust could help halt the currency's two-week decline, according to strategists.
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About $4.8 billion has exited the more than decade-old Bitcoin wallet — the largest in the world — since it became an exchange-traded fund on January 11, data compiled by Bloomberg showed. Bitcoin lost about 20% in the same period.
Converting the fund from a closed-end format allowed investors to close popular arbitrage trades and sparked disposals by the ownership of the bankrupt FTX exchange. The daily pace of outflows from the instrument, also known as GBTC, reached a peak of $641 million on January 22, but fell to $394 million by January 25.
“We are starting to see a pattern of declining redemptions from GBTC,” Sean Farrell, chief cryptocurrency strategist at Fundstrat Global Advisors, wrote in a note. “We will certainly need to see a few more days of follow-through, but just the AUM exodus slowing will be a big boost to the market.”
Grayscale's fund began trading in its new form on the same day as nine other bitcoin spot funds, including from BlackRock Inc. and Fidelity Investments, for the first time in the United States. These funds have attracted more than $5 billion, while the net inflow into the 10 ETFs as a whole is about $574 million, according to data compiled by Bloomberg.
Read more: Why the Bitcoin ETF has been a long time coming: QuickTake
Shares in the Grayscale vehicle fell to a discount to the portfolio's underlying Bitcoin holdings as of early 2021 when the product was shuttered. ETF units tend to embrace net asset value, so the prospect of the trust converting led speculators to bet the discount would disappear, which it did in time.
“Profit taking on prior GBTC investments, made at a discount to last year's net asset value, is likely a key driver behind Bitcoin's correction,” JPMorgan Chase & Co. strategists, including Nikolaos Panigirzoglou, wrote in a note. . The team added that this profit-taking “should be largely behind us, limiting any downside for Bitcoin from here.”
“Dominant” folders.
Grayscale Bitcoin Trust “dominates trading volume, and has really cemented its role as a true capital markets vehicle for risk transfer in Bitcoin,” John Hoffman, managing director of sales and distribution at Grayscale Investments, said earlier this week. “GBTC's diverse shareholder base will continue to deploy strategies that impact inflows and outflows,” he added.
Bitcoin has risen nearly 160% in the past year, outperforming traditional assets such as stocks, amid expectations that U.S. spot ETFs will spur broader adoption of the cryptocurrency by institutional and retail investors.
The token has been declining since the turn of the year and is lagging global markets as investors wait to see if the hype will become reality. The U.S. spot bitcoin ETF group had the most successful ETF launch in history, by trading and flow metrics, according to Bloomberg Intelligence.
Bitcoin reached an intraday peak of $49,021 on January 11 when the money was floated before falling to a low of $38,510 earlier this week. The largest digital asset was trading at $40,098.32 as of 11:19 a.m. in Singapore on Friday. It hit a record high of about $69,000 during the pandemic-era cryptocurrency mania in 2021.
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