- JPMorgan has expressed concerns about a potential outflow of funds following the conversion of Grayscale Bitcoin Trust (GBTC) into an ETF.
- The discount of GBTC to Bitcoin’s market price has reduced from -46% at the start of the year to -9.77% by November 22, indicating investor expectations of SEC approval for the conversion.
In a recent analysis, JPMorgan raised concerns about the possibility of significant fund outflows following the potential conversion of the Grayscale Bitcoin Trust (GBTC) into an exchange-traded fund (ETF). The banking giant estimates that such a conversion could prompt investors to withdraw at least $2.7 billion from the trust.
The Grayscale Bitcoin Trust, a key player in the previous cryptocurrency bull market, has seen its discount to Bitcoin’s current market price steadily shrink from -46% at the beginning of the year to -9.77% by November 22. This reduction in the discount is seen as a signal that investors anticipate approval from the U.S. Securities and Exchange Commission (SEC) for Grayscale’s conversion into a spot Bitcoin ETF. However, JPMorgan has cautioned that this conversion might introduce some instability in the market.
JPMorgan analysts, including Nikolaos Panigirtzoglou, have closely examined the inflows into GBTC since the start of 2023. They have identified a calculated strategy employed by traders to profit from the discount upon ETF conversion. The bank’s methodology considers the cumulative signed dollar volume, accounting for both the volume of shares traded and the direction of price movement.
These analysts suggest that the influx, primarily driven by speculation surrounding GBTC’s conversion into an ETF, is likely to reverse as investors seek to capitalize on the narrowing discount to net asset value. The minimum anticipated outflow, once the conversion to an ETF occurs, is estimated at $2.7 billion.
However, this figure could increase if GBTC’s current fee structure, which stands at 200 basis points, is not significantly reduced post-conversion. The competitive landscape, as indicated by the ARK 21Shares Bitcoin ETF’s 80 basis points fee, implies that GBTC would need to reduce its fees to maintain its market dominance.
The potential impact on the market is noteworthy. A withdrawal of $2.7 billion could exert substantial downward pressure on Bitcoin prices. Nevertheless, JPMorgan analysts believe that much of this capital will likely be redirected to other Bitcoin-related instruments, mitigating severe market disruptions.
Market Reconfiguration and Asset Shifts
They anticipate a reconfiguration of assets, with a shift from $23 billion in GBTC and $5 billion in other funds to $20 billion in the trust and $8 billion in other vehicles. However, they caution that a portion of the funds may exit the Bitcoin space altogether, posing a risk of a downturn in Bitcoin prices.
Interestingly, JP Morgan analysts, led by Panigirtzoglou, had predicted in early September that the SEC would be compelled to approve spot Bitcoin ETFs after losing the case against Grayscale. Their forecast relies on the assumption that the approval of a group of ETFs will intensify competition among Bitcoin investment products, potentially resulting in a fee structure more in line with that of Gold ETFs, typically around 50 basis points.
As the market awaits the SEC’s decision, the primary concern is whether the expected GBTC outflows will find a new home within the Bitcoin space or signify a broader withdrawal from BTC investments.
At the time of writing, Bitcoin was trading at approximately $37,560.
