The Breakdown - When Will the GBTC Selling End!?!

Episode Date: January 25, 2024

Billions have flown into Bitcoin ETFs, but the relentless selling of GBTC has been a major drag on the price of BTC (to say nothing of the mood of the industry). NLW explores when people think it will end. Enjoying this content? SUBSCRIBE to the Podcast: https://pod.link/1438693620 Watch on YouTube: https://www.youtube.com/nathanielwhittemorecrypto Subscribe to the newsletter: https://breakdown.beehiiv.com/ Join the discussion: https://discord.gg/VrKRrfKCz8 Follow on Twitter: NLW: https://twitter.com/nlw Breakdown: https://twitter.com/BreakdownNLW

Welcome back to The Breakdown with me, NLW. It's a daily podcast on macro, Bitcoin, and the big picture power shifts remaking our world. What's going on, guys? It is Thursday, January 25th, and today we are talking ETF updates. Are the GBT-Outflows done? What do they mean for Normies? Et cetera, et cetera, et cetera. Before we get into that, however, if you are enjoying the breakdown, please go subscribe to it, give it a rating, give it a review, or if you want to dive deeper into the car. conversation. Come join us on the Breakers Discord. You can find a link of the show notes or go to bit.

dot,ly slash breakdown pod. So friends, yesterday we did a big macro day and today we are catching up on ETFs and the Bitcoin markets. And the big question has been basically ever since the ETF, why is the Bitcoin price going down? Is it a sell-the-news event? Is it just grayscale? And what might the impacts be? For example, Jim Bianco recently tweeted, The spot Bitcoin ETF started on January 11th when the price was 49,021, 10 minutes after the ETF trading began. Two weeks later, the Selden News correction is now 21% and not yet showing signs of bottoming. This may not sound like much to experience DGens, but to Normie's first getting into crypto, they got rugged. They are all sitting on big losses when they could have been

in SPY or KKQQQ and gloating. Crypto is now at real risk of seeing its great hope to get serious Tradfai money fail. What can save it? Take out 49K. How long will that take? What if it's a year or more? So, the wave of outflows from the Greyscale Bitcoin Trust continues to absolutely dominate the narrative around Bitcoin's price. As of market close on Wednesday, GPDC held a little over 523,000 Bitcoin. That means around 100,000 Bitcoin have been redeemed from the fund since it was converted to an ETF two weeks ago. Over the first nine days of trading, GBTC has seen 4.3 billion in total outflows, although Wednesday's figures backed off slightly for the second day in a row. 429 million in outflows were roughly.

registered after the previous few days were above $500 million. Bloomberg senior ETF analyst Eric Pocunis wrote, GPTC Outflows Today were quote unquote only 425 million, lowest bleed since day one and seemingly trending down. That said, it's still a pretty large number. Now, of course, no one knows whether Wednesday's slowdown will be the start of a persistent trend or if there's still a lot of outflows to come. GPTC began the year with around $29 billion in assets under management. With 15% of those assets drained in two weeks, it does seem implausible that outflows would continue at such a high rate. The fund would be emptied out completely by April if that were the case. Now, Balcunas had previously predicted around 25% of GBTC would be redeemed. And if that prediction

is accurate, then we're more than halfway done. Now, as I mentioned a couple days ago, reports earlier in the week suggested that the FTX estate contributed significantly to early outflows. According to a CoinDesk report, FDX had liquidated their entire GBTC holdings, valued at around 775 million. The largest holder of GBCC is, of course, Grayscale's parent company Digital Currency Group. According to their last annual report, DCG holds around $1.3 billion worth of GBTC shares. As DCG is a private company, we aren't guaranteed transparency into whether this holding has been liquidated unless they volunteer disclosure.

Given the financial pressure DCG is under surrounding the Genesis bankruptcy, it's entirely possible that they have used this opportunity to raise some cash. Another Bloomberg ETF analyst James Safart wrote, Everyone was fixated on FTX in the last week as the seller of GBTC shares. The largest known holder of the GBTC is actually DCG itself. I'd honestly be surprised if DCG hasn't been part of this GBTC selling, probably other institutions in very similar situations. Now, the other big question mark is, of course,

the unwind of hedge fund positions taking advantage of the GPTC discount. GP Morgan analysts had estimated the size of this trade at around $3 billion. In other words, these were people who didn't care at all about Bitcoin or anything surrounding it, they just knew that GPTC was trading less than the value of the assets underlying and knew that with a presumed ETF coming, that was likely to change. Well, now that the GBT discount has closed, it seems likely that most of this unwind has been completed. And while GPDC outflows have been the major focus of market sentiment, it's worth noting that inflows into the other products have been large enough to offset it. Across the first two weeks of trading,

net inflows across all 10 spot Bitcoin ETFs are around 650 million. If large chunks of the GBT outflows were outright sales from FTCX and potentially also DCG, that tells a much more positive story about organic demand for the other products. We're even starting to see signs of life in the Bitcoin price, with a small rise from lows on Tuesday to trade stably at around 40,000. Now, of course, a 20% drawdown since the launch of the ETFs is undeniably painful. But if that's all there is, it was one of the milder major drawdowns in Bitcoin's history. In fact, there have been three other 20% drawdowns in the past year, which have more or less already faded from memory. You can definitely feel the sentiment starting to shift on Twitter slash X.

Stack Hodler writes, Enjoy the Bitcoin fear while at last because the GBTZ dumping will stop. But nobody is prepared for the FOMO that will set in when people realize the Black Rock and Fidelity bid is relentless. The ETFs are a smashing success hidden behind a temporary GBTC smokescreen. Nick Carter hilariously wrote, GBT died as it lived, absolutely trashing the market and being a gigantic wrecking ball of toxic waste,

most cursed financial instrument of all time. Now, going back to that Jim Bianco quote that we started with, the flow horse responded, I don't think we've seen a lot of normies actually get in. There was a lot of crossover between current products and natives buying in their traditional accounts. No major retail push arrived yet. This is a bit more obvious if you were in the weeds

with some of the patterns that took place on main venues. So basically the argument is that there wasn't this group to be rugged because the normies just weren't coming in yet. And that by and large strikes me as correct. Indeed, Bianco extended his thoughts and said, don't disagree, but this correction is going to make Normies move on from Bitcoin for now and chase the shiny object of a new all-time high in SPY. When will they return, when Bitcoin becomes the shiny new object again, when it gets back to 49K.

The argument basically here is that as stocks hit a new all-time high and we officially transition into a recognized bull market again, that's where the average retail investor is going to focus, and it's not going to be until Bitcoin achieves some new price threshold that people start paying attention again, which I think is also. probably true. Now, one other thing in and around the ETFs, Bitwise had become the first asset manager to publish the Bitcoin address associated with their ETF. The firm said on Twitter, now anyone can verify BITB's holdings and flows directly on the blockchain. Onchain transparency is core to Bitcoin's ethos. We're proud to walk the walk with BITB. Publishing on-chain addresses

is a first step towards increasing public transparency. As infrastructure evolves, we hope to do more, such as working with firms like Hoseki to provide real-time cryptographic attestations. Bitwise CEO Hunter Horsley said the decision was made in response to, quote, clear feedback in the form of a Twitter poll. 91% of respondents had asked for the address to be published. Today's episode is brought to you by Cracken. For far too long, the whole financial system has been standing still, too slow, only on for certain hours, overly designed for some types of people, but not for others. Crypto, at its best, represents progress. It asks the question, what if? It invites people in

instead of leaving them out. It's on 24-7, 365, and moves at the speed of real life. Not everyone believes it. We've got our fair share of detractors, but that's the way it always is when you're building something new. Cracken is a crypto company that has been through the highs and lows of the industry, facing forwards towards progress throughout. And now they're inviting us to see what crypto can be. Learn more at crackin.com slash the breakdown. Disclaimer, not investment advice. Crypto trading involves risk of loss. Cryptocurrency services are provided to U.S. and U.S. territory customers by Payward Ventures Inc. PVI, BVI, DBA, Crakken. Now, the notion that the new ETFs don't really hold Bitcoin hasn't been a credible opinion.

The regulations surrounding ETFs are extremely clear, and these products are likely receiving close scrutiny to verify their holdings. Still, it is obviously impressive to see Bitwise committing to the ideology of the industry, that greater transparency and verification in the financial system is preferable to blind trust. Earlier this week, Arkham Intelligence claimed to have identified the wallet addresses for BlackRock Fidelity Bitwise and Franklin Templeton, and so in some ways Bitwise wasn't really revealing hidden information. But of course, there is a massive difference between having a wallet doxed and deciding to promote the address so anyone can independently verify its holdings. Nick Carter again wrote, immensely proud of Bitwise for leading the way on transparency

among ETF sponsors, and for Hoseki for providing the tooling. In my opinion, Bitcoin isn't being co-opted by TradFi. In some important ways, Bitcoin is making Tradfai better. Bologi Shrinivasin wrote, important first step towards on-chain accounting. Bitcoin's blockchain is more trustworthy than any state. Satoshi over SEC. Nekarasi, the president at ETF store said, love this move from BitWise, transparency of ETF wrapper plus on-chain transparency. Another example of Tradfai-DFI bridge building. Lawyer Darren Feinstein wrote, There is $11 trillion in physical gold chasing $250 trillion in paper gold because there is no transparency to the asset.

It is hoarded, controlled, and monitored in secret by 200 governments on the planet. Bitwise flipping that model. Great job. Now, then again, of course, nothing in the Bitcoin space can escape criticism entirely. Kasa's CTO Jameson Lopp responded to the announcement stating, That's cool, but paid a public key hash addresses were deprecated over five years ago. Hong Kim, the CTO of Bitwise, responded, we hear you that this should be a taproot address and it's painful that it's still not.

We're pushing hard for an upgrade with our custodian and we'll report back. Now, Bitcoiners also took the opportunity to have some on-chain fund. Someone sent, for example, 69-69 sats to Bitwise address almost immediately. More donations, including rare sats and ordinal inscriptions float in overnight. Eric Balcunas tweeted, I'm pretty sure this is a first for an ETF, someone donating underlying assets to the fund, which is now possible because Bitwise published their Bitcoin address. Never a dull moment, I swear.

Now, many noted that a public address opens Bitwise up to the risk of being sent Bitcoin from a sanctioned address, highlighting the issue with the way crypto assets are currently being dealt with by the Treasury. That issue would be even more pronounced if financial institutions publish their Ethereum addresses. Kobe pointed out that, quote, their eth address would be a mess because people will send BlackRock hundreds of millions of all coins as an advertising method, kind of like what people did with Vitalik, and also spoofing the buys to OMG BlackRock owns 10 million of hex. Now, aside from the fun in games, the major point is that history was made this week by Bitwise. we now have the first U.S.-based

ETF with public proof of reserves, independently and instantly verifiable by anyone on the planet. Now, speaking of Ethereum, the SEC have delayed their decision on the BlackRock-Spot Ethereum ETF. This action came as a surprise to no one after the regulator delayed their decision

on the Fidelity ETF last week. All eyes are on May 23rd as the first date that really matters when the SEC will be forced to make a final decision on the Vanek product. Although a decision is unlikely to be made For months, the Ethereum ETFs are clearly a hot topic for SEC leadership. In an interview on Tuesday, SEC Commissioner Hester Perce had some strong words about the process

surrounding crypto ETFs. Referencing the regulator's loss in the Grayscale lawsuit, she said, We shouldn't need a court to tell us that our approach is arbitrary and capricious in order for us to get it right. That's not how we're going to do our approvals. Now, the Grayscale case did clearly have a large impact in forcing through the Bitcoin ETF applications, and many are suggesting the precedent should carry over to Ethereum. products. Purse acknowledged that the facts and circumstances vary between assets stating,

there's a lot of work that goes into getting an exchange-traded product ready for market, including making sure that the disclosures are lining up with how the product actually works. Still, the grayscale loss has undermined the credibility of the SEC's process as a supposedly merit-neutral regulator. Pursz added, having heard from a court that the approach we were taking was wrong, I think that kind of a lesson will certainly stick with us. Now, the passage of time, however, has done nothing to soften Gary Gensor's stance towards Ethereum ATFs. At a media briefing on Wednesday, the SEC chair said, as I said two weeks ago, that which we did with regard to Bitcoin Exchange traded products is cabin to this one commodity non-security and shouldn't

be read to be anything other than that. As a total aside, I don't know why Gensler has decided to go so hard on this phrase of Cabin, which is such a weird and not usually used phrase. It strikes me as weirdly representative of everything he does where he picks a position and just says it over and over and over again, no matter what new information comes in. He even does that with his vocabulary. Now, anyway, Gensler did, however, acknowledge that the ETF wrapper has improved Bitcoin access for investors, adding, in that light, there's also better disclosure. They're listed on stock exchanges now rather than trading in over-the-counter markets. There were 10 or 11 that went live at the same time that brought a certain amount of competition. You've seen some competition that

investors benefited from lower fees. Now, Bloomberg's Eric Balcunas seems fairly certain that Ethereum ETHs will get approved in due course. His team are currently handicapping approval in May at 70%. He said, The Ether Spot is tied to the hip of Bitcoin Spot for sure. It's going to go wherever it goes. It's basically on a 15-foot rope following it. Crypto lawyer Joe Carlos Ari thinks the SEC might be careful not to open the floodgates in making their decision, stating, Ethereum Spot ETFs will be approved, but the SEC will try to carefully craft a precedent that permits them to retain some discretion in determining which digital asset ETFs will be permitted to come to market. Put another way, I think the SEC is trying to provide guidance that would deter applicants

from filing ETFs for every major token. Now, although the consensus is that the Ethereum ETFs will get the seal of approval, we've certainly yet to see any sign of activity from the SEC. The first moment that made spot Bitcoin ETF approval likely was when the SEC began engaging with issuers last October. There are currently no rumors of regulatory engagement surrounding the Ethereum products, with one issue we're describing the situation as radio silence. So friends, that is the ETF picture from here. Again, the big questions are one, when will GPTC Outflow stop? Two, who are the actual new buyers who are coming in?

And three, where does Bitcoin's price go from here? All interesting stuff, things that we can come back to frequently. For now, I want to say one more big thank you to the sponsor of today's show, Cracken. Go to crackin.com and see what crypto can be. Until next time, be safe and take care of each other. Peace.