Is Bitcoin in danger of losing $30K with Grayscale's big GBTC unlocking in two weeks?
In the $30,000-$40,000 zone, Bitcoin prices continue under pressure for traders to release GBTC's 16.000 BTC equity value in July.
The possibility of a prospective stock market sale linked to a Bitcoin (BTC) multi-billion dollar investor fund crashing spot price in the cryptocurrency has become a heatedly discussed subject among space specialists.
For months the premium of Grayscale remained negative
The argument relates to Grayscale Bitcoin Trust, the largest digital asset manager in the world, enabling institutional investors to get indirect exposure through their GBTC product in Bitcoin. Investors buy GBTC shares by paying in either Bitcoin or the US dollar directly via Grayscale for daily private placements.
However, investors in sub-markets can only sell their GBTC shares to third parties following a six-month lockup. They thus plan to liquidate at a premium if at the time of sale the market price is above the native asset value (NAV).
However, when the market price has fallen below the NAV, liquidating GBTC's shares results in losses. Thus, for a financial loss, if investors opt to liquidate their GBTC holdings. The reason is that from February 24, 2021 the stock has been traded beneath the NAV for a discount.
Some experts, notably JPMorgan strategists, anticipate that authorized investors would sell, after the July unlocking period, at least a portion of their GBTC holdings, leaning further against the current trend in the Bitcoin market.
"Despite the corrections to our Bitcoin and crypto markets this week, we remain unwilling to give up our negatives. Thus our signals remain generally bizarre, notwithstanding improvements», says Nikolas Panigirtzoglou, JPMorgan's senior strategist in a letter for customers.
However, the event will flush sellers in July, allowing up both volatility and booming potential to shatter new highs of the past.
Is the price of Bitcoin connected to unlock dates for Grayscale?
Panigirtzoglou stated that it is the GBTC shares that were raised by investors with a bonus of about 40% in December 2020. The month witnessed appealing $2 billion Bitcoin Trust inflows, following by $1.7 billion in January.
In other words, by the end of July roughly 140,000 Bitcoin shares are released. Between mid-April and mid-June, a time coinciding with the BTC/USD spot fall from about $65,000 to as low as $28,800, has already been released about 139,000 bitcoin.
Lyn Alden, the founder of Lyn Alden's Investment Strategy, pointed out the link between the Bitcoin Price Crash area and its grayscale's GBTC unlocking dates.
Alden pointed to the correlation that indicated a decline of the "neutral arbitration trade" of Grayscale.
Institutional investors borrow Bitcoin in arbitration (like hedge funds) to buy GBTC shares. Then, once the lock-up expires, GBTC shares are generally sold to individual investors for premiums on secondary markets. Then the borrowed Bitcoin is returned to their lenders and the difference is poked.
"The grayscale neutral arbitration trade in the second half of 2020, which sucked in tons of bitcoin, was part of the run-up," Alden tweeted late Monday.
But the arbitration method may have contributed to, but did not lead to, the price fall for Bitcoin according to David Lifchitz, from ExoAlpha.
He said the true GBTC arbitration approach is for deep-pocket investors. The chief investment officer stated This is because during the GBTC lock-up, they would have to keep the short Bitcoin position – overtime expenses would risk compensating the price difference arbitrarily away.
"Their profit depends on the purchase prices of GBTCs for the basic GBTC purchasers who don't sell short BTCs vs. BTCs. If the buyers have between $40 and $60K, they're now in the red...and may not want to sell and lock in their lost,"
Gryscale Chief Executive Michael Sonnenshein said Barron's that GBTC shares with a medium to long term perspective are purchased by investors. So they may not instantly want to release their assets.
Added Sonnenshein:
"With regard to their net asset value or Bitcoin, I would suggest that investors would probably consider where the share price is before they think about any liquidity."
"When ETFs and new ways in which Bitcoin has been accessed rendered GBTC less distinctive, premium is gone and neutral arb trade is gone."
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