As Bitcoin (Bitcoin) Struggling at the $32,700 mark after falling prices on July 8, Another major event shrouded the flagship cryptocurrency in July, Grayscale Bitcoin Trust (GBTC) unlocked.
A total of nearly 40,000 BTC will be unlocked in July, with a nominal value of nearly 1.5 billion US dollars. The largest unlock will take place on July 18, when 16,240 BTC will be available because the six-month lock-up period for GBTC shares has been released.
This batch of stocks includes positions locked in the first quarter of 2021, with a nominal value of approximately US$530 million, which is the largest GBTC unlock event to date.
Grayscale Investments is one of the largest digital currency institutional fund management companies, allowing institutional investors to gain exposure to Bitcoin price movements through GBTC stocks.
At the time of writing, the GBTC Fund hold 654,600 BTC tokens, valued at more than 21.56 billion U.S. dollars. This is equivalent to 3.11% of Bitcoin’s maximum supply of 21 million tokens, making the fund the preferred destination for institutional investors to access BTC through traditional trading products. GBTC shares are available on OTCQX, an over-the-counter trading platform owned by the over-the-counter market group.
The current trading price of GBTC stock is US$27, a drop of more than 52% from the historical high of US$58.22 set on February 19. The stock tracks the market price of Bitcoin and does not include any applicable fees and expenses. The minimum capital requirement for investment is $50,000, and these stocks are more suitable for institutional investors who can obtain such a large amount of capital.
Are JP Morgan’s estimates flawed?
According to JPMorgan Chase analysts, during the ongoing bearish period that BTC is currently witnessing, the unlock event may pose a “downside risk” to the BTC spot market.They go further statement, “The sale of GBTC stocks that exited the six-month lock-up period in June and July has become another headwind for Bitcoin.”
However, the most recent one report According to a source from the cryptocurrency exchange Kraken, “The market structure shows that, if anything, unlocking will not have a significant impact on the BTC spot market in the short term, as some people claim.” Kraken cited a filing with the US Securities and Exchange Commission. According to the document, most of the stocks to be unlocked belong to large institutions, which purchased GBTC shares through BTC to use the stock’s premium net asset value (NAV) to trade at the time.
In addition, these investors are likely to short Bitcoin in the futures market to minimize any impact due to the drop in BTC spot market prices. Cointelegraph discussed the unlocking event with Shane Ai, who is responsible for the development of crypto derivatives products at Bybit (a cryptocurrency derivatives exchange). He explained:
“The upcoming GBTC unlock is a function of a private sale completed six months ago. At that time, the spot premium was close to 30%. These transactions may be accompanied by corresponding BTC short positions. If any, the closing of these BTC short positions will translate into buying pressure The difference today is that there is no new private placement, which reduces the potential for new short positions in spot BTC.”
The GBTC premium is the difference between the value of the assets held by the trust (ie Bitcoin) and the market price of these assets. This premium exists due to institutional demand driving the GBTC Fund, which provides a regulated exchange trading method for gaining exposure to Bitcoin.
Kraken further pointed out that institutional investors trying to arbitrage the GBTC premium can even hold their GBTC shares instead of selling them in the secondary market and maintain short positions. This will mean that there is no net sale of tokens.
Investors may also sell their GBTC shares to cover their short positions, resulting in a net purchase of tokens. However, regardless of the method, the impact on the spot price may not be realized immediately as the market expects.
Pete Humingston, manager of Kraken Intelligence, the exchange’s research department, played down the correlation between the two assets. He said: “Although one asset is a single asset fund of the other, BTC and GBTC are two different assets with different strengths that affect their respective prices.” He went on to say: “The trading strategies commonly used by institutional investors led us to conclude that this event may have a mild positive impact on the price of Bitcoin.”
GBTC discount may become a premium
Before February 23 this year, the spread between the net asset value of GBTC and BTC has always been a positive number-that is, a premium. The premium hit a record high of 122.27% on June 6, 2017. However, since the end of February this year, the premium turning price hit a record low of -17.86% on May 16.
Sui Chung, CEO of CF Benchmarks, a subsidiary of Kraken, introduced the meaning of this discount to Cointelegraph and stated: “A negative gray-scale premium does not indicate that institutions’ interest in Bitcoin is waning. On the contrary, it may indicate the cryptocurrency field. There are more choices and higher market maturity.”
He also mentioned that due to a large number of alternative products such as Bitcoin exchange-traded funds (ETF), the gray premium has also shrunk. The increasing prominence of Canadian ETFs, such as purpose and evolution, has had a ripple effect on the attractiveness of GBTC funds. Zhong said: “Without this premium, qualified investors can no longer buy stocks at their net asset value and sell them at a higher spot price after being locked in.”
Cointelegraph discussed the GBTC discount with Adam Jones, senior editor of OKEx Insights, a cryptocurrency exchange research team:
“The goal is always to buy low and sell high. Due to strong demand and institutional interest, the GBTC premium has become very high and severely overbought. Now, the interest rate drops with the premium… But once the unlocking is over and the institution hopes to gain exposure at a discounted price Mouth, interest may be restored.”
He further explained that when the new supply ceases, the market may correct, because at present, it allows investors the opportunity to obtain Bitcoin price movements at a discount of 10%-20%. However, Ai believes that unless the GBTC fund transitions to an ETF that uses a redemption mechanism, this discount is unlikely to become a premium.
With the biggest unlocking event approaching on July 18, Bitcoin seems to be hovering in a bearish manner near $32,000, causing a domino effect on the entire altcoin market. Since unlocking may not see significant downward price changes, the price may rebound to a higher range, ultimately having a net positive impact on the flagship token.