Grayscale’s large GBTC will be unlocked within two weeks. Is there a risk of losing $30,000 in Bitcoin?


Is the potential stock sell-off related to Bitcoin worth billions of dollars (Bitcoin) Investment funds may cause the spot price of cryptocurrencies to plummet, which has become a hot topic for analysts in this field.

The grayscale premium has remained negative for several months

The argument involves Grayscale Bitcoin Trust, the world’s largest digital asset management company, which allows institutional investors to indirectly access the Bitcoin market through its product GBTC. Investors purchase GBTC shares directly through Grayscale through daily private placements paid in Bitcoin or U.S. dollars.

Nevertheless, investors can only sell their GBTC shares to other parties after the six-month lock-up period in the secondary market. Therefore, when the market price at the time of sale exceeds the local asset value (NAV), they are expected to liquidate at a premium.

On the other hand, when the market price is lower than the net asset value, liquidation of GBTC stocks will bring losses. Therefore, if investors decide to sell their GBTC holdings, they will have to do so to avoid financial losses. This is because since February 24, 2021, the stock has been trading at a discount, which is lower than its net asset value.

The GBTC premium has been negative for several months. Source: ByBt.com

Some analysts, including strategists at JPMorgan Chase, believe that qualified investors will sell at least part of their GBTC holdings after the July unlock period, further suppressing the continued downward trend in the Bitcoin market.

“Despite this week’s correction, we are still reluctant to give up the more generally negative outlook for the Bitcoin and crypto markets. Therefore, despite the improvement, our signals remain bearish overall,” said Nikolas Panigirtzoglou, chief strategist at JPMorgan Chase Said in a report to the customer.

despite this, Other analysts believe This event will drive sellers out of the market in July, opening up volatility and the bullish potential to break new historical highs.

Is Bitcoin price related to the gray unlock date?

Panigirtzoglou explained that it was GBTC stock that was acquired by investors at a premium of about 40% in December 2020. This month, Grayscale Bitcoin Trust Fund attracted an inflow of USD 2 billion, followed by USD 1.7 billion in January.

This means that approximately 140,000 Bitcoin worth of shares will be unlocked by the end of July. Between mid-April and mid-June, about 139,000 bitcoins have been issued, and this period also coincided with the fact that the bitcoin/dollar spot fell from around US$65,000 to a low of US$28,800.

Lyn Alden, the founder of Lyn Alden Investment Strategy, pointed out the correlation between the sharp drop in Bitcoin’s spot price and its gray-scale GBTC unlock period, and pointed out that the same situation may happen as more stocks are unlocked in July.

The unlock date of the Grayscale Bitcoin Trust. Source: Bybt.com

Alden hinted that this correlation indicates a slowdown in gray’s “neutral arbitrage trading”.

In arbitrage trading, institutional investors (such as hedge funds) borrow Bitcoin to buy GBTC stock. Then, after the lock-up period expires, these investors sell GBTC shares to retail investors in the secondary market, usually at a premium. Then, they return the borrowed bitcoin to the lender and pocket the difference.

“Part of the increase in the second half of 2020 was due to gray-scale neutral arbitrage trading, which absorbed a large amount of Bitcoin,” Alden tweeted on Monday evening, adding:

“When ETFs and other new methods of accessing Bitcoin made GBTC less unique, the premium disappeared, so neutral arbitrage trading disappeared.”

Grayscale Investments stopped selling GBTC shares after February 2021. Source: ByBt.com

However, according to ExoAlpha’s David Lifchitz, the arbitrage strategy may have contributed to but did not cause the Bitcoin price to plummet.

The chief investment officer pointed out that the real GBTC arbitrage trading strategy is aimed at investors with deep pockets. That’s because they need to hold short Bitcoin positions during the GBTC lock-in period-the cost of overtime may offset the price difference in arbitrage.

“For simple buyers who buy GBTC shares at discounted prices, they did not short-sell BTC, and their profit depends on the price at which they purchased GBTC: if their purchase price is between US$40,000 and US$60,000, then they Being in red today… and may not want to sell and lock in their losses,” he told Cointelegraph.

Grayscale CEO Michael Sonnenshein Tell Barron Investors buy GBTC stocks with medium to long-term prospects. Therefore, they may not want to sell their assets immediately after unlocking.

Sonnenshein added:

“I usually say that before considering any liquidity, investors will definitely consider the position of the stock price relative to the net asset value or Bitcoin.”

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