- The approval of a Bitcoin ETF would reduce Grayscale’s market share and reduce the premium for its BTC-based product.
- Institutions reduce exposure to gold ETFs to buy Grayscale Bitcoin Trust (GBTC) shares.
While Bitcoin is on its way back to the mid-30,000s, the price suffered its first major setback of the year today. However, the cryptocurrency’s fundamentals remain strong, while a report from JPMorgan is pessimistic about the possible approval of a Bitcoin ETF.
Contrary to the belief popularized in the crypto community, the bank believes that a Bitcoin ETF would end the “monopoly” held by the Grayscale Bitcoin Trust (GBTC). Other entities would be allowed to issue similar products. Therefore, the premium that institutions pay to buy GBTC shares would be reduced. This would translate into a drop of the price, as JPMorgan analyst Nikolaos Panigirtzoglou stated:
A cascade of GBTC outflows and a collapse of its premium would likely have negative near-term implications for Bitcoin given the flow and signaling importance of GBTC.
The approval of a Bitcoin ETF has started to gain traction again a few weeks ago, after being rejected several times in the last few years. The change in leadership at the U.S. Securities and Exchange Commission (SEC) and the change in the administration of the executive branch, appear to be positive for those proposing an ETF based on the cryptocurrency.
Therefore, the asset manager VanEck has again submitted an application for approval of a Bitcoin ETF to the SEC. If approved, the product would be called VanEck Bitcoin Trust and could be one of the first to reduce Grayscale’s market share.
High demand for Bitcoin “ETF-like” products
Meanwhile, institutions seem to be hungry for a Bitcoin ETF. This is evidenced by the increase in Grayscale’s total assets under management (TAM). In its most recent update, Grayscale reports $28.4 billion in AUM. The Grayscale Bitcoin Trust alone rakes in $24 billion.
01/08/21 UPDATE: Net Assets Under Management, Holdings per Share, and Market Price per Share for our Investment Products.
— Grayscale (@Grayscale) January 8, 2021
In addition to the above, it was recently reported that Morgan Stanley made a significant purchase of shares of MicroStrategy. The company has adopted a Bitcoin-based treasury strategy and its share price shows a high correlation with BTC’s performance. Morgan Stanley has purchased 792,627 or 10.9% of MicroStrategy’s shares.
Jan. 08, 2021
— ecoinometrics (@ecoinometrics) January 11, 2021
Further evidence that the market is eager for a Bitcoin ETF (BTC) is found on data share by Bloomberg Intelligence. They indicate that investors have decreased their allocation of funds to gold ETFs in preference to Grayscale’s Bitcoin (BTC) based product, as shown in the chart below.
Senior Commodities Strategist for Bloomberg Intelligence, Mike McGlone, says the trend shown above points to a possible increase in Bitcoin’s price for the long term. In addition, McGlone stated:
(…) flows into the Grayscale Bitcoin Trust (GBTC) accelerating as they decline in total known ETF holdings of gold. At about 570,000 Bitcoins, GBTC is reaching record highs, while gold ETFs have dropped to about 107 million ounces from the October peak just above 111 million.