Bitcoin [BTC) has dropped over 15% since the inaugural launch of spot exchange-traded funds (ETFs) last week with several billion in assets flowing out of Grayscale's GBTC. While a chunk of those billions has been from investors moving to lower fee ETFs and another chunk from investors taking profits on GBTC's (and bitcoin's) absolute price rise, at least some of that money is due to traders exiting what's likely been a very profitable bet that GBTC's discount to net asset value (NAV) would narrow.

“It looks like GBTC investors who over the past year had been buying the GBTC fund at a significant discount to NAV to position for its eventual ETF conversion, have been taking full profit post-ETF conversion by exiting the bitcoin space entirely rather than shifting to cheaper spot bitcoin ETFs,” analysts led by Nikolaos Panigirtzoglou wrote.

Before being uplisted to an ETF from a trust, GBTC was one of one of the only ways for stock traders in the U.S. to gain exposure to the price movements of bitcoin without the need to purchase the actual cryptocurrency. That made it the largest regulated bitcoin fund in the world by AUM. The bank had previously estimated that up to $3 billion had been invested in GBTC in the secondary market during 2023 to exploit the trust’s discount to NAV. If this estimate is correct, and given that $1.5 billion has already exited, there could be an additional $1.5 billion to exit the space via profit-taking on GBTC, which will put further pressure on bitcoin prices in the coming weeks. These outflows are also putting pressure on GBTC to lower its fees, the report said, adding that the “GBTC fee at 1.5% still looks too high compared to other spot bitcoin ETFs risking further outflows.” “A lot more capital, perhaps an additional $5 billion-$10 billion, could exit GBTC if it loses its liquidity advantage,” the bank cautioned. As of Friday, GBTC is the most expensive ETF among counterparts, with some charging zero fees for the first six months or until a certain assets under management (AUM) target is reached.

JPMorgan says other spot bitcoin ETFs, minus GBTC, attracted $3 billion of inflows in only four days, and this is comparable to the inflows seen during previous bitcoin product launches. Most of this $3 billion of inflows reflects a rotation from existing bitcoin vehicles such as futures-based ETFs, the report added.

GBTC Grayscale

Will Canny

Will Canny is an experienced market reporter with a demonstrated history of working in the financial services industry. He's now covering the crypto beat as a finance reporter at CoinDesk. He owns more than $1,000 of SOL.