Grayscale Finally Turns it Around

GBTC Goes Big. The Grayscale Bitcoin Trust (GBTC) experienced its first net inflow since converting to a spot ETF! Did we just enter a more bullish paradigm, or is there an alternative explanation for this unexpected inflow?

Bitcoin was much less institutionalized during the last bull run, but investors could still leverage GBTC to gain BTC exposure through a traditional brokerage account.

At this time, net new buys were restricted to accredited investors and subject to a lock up period – initially 12 months and later reduced to 6 months – before they could sell those shares on the market, causing shares to trade at a massive premium to net asset value (NAV) as retail investors feverishly sought to ape BTC through a convenient and regulated avenue.

Unfortunately for holders, this premium turned to a discount as demand for BTC waned toward the end of February 2021, with the instrument's lack of redeemability preventing its market price from converging to NAV.

Friday’s inflow snapped the nearly 80 day outflow streak that GBTC had experienced since redeemability was enabled upon conversion to a spot ETF and was the first time Grayscale purchased BTC for this product since the premium closed over three years ago!

GBTC's strong performance coincided with simultaneous inflows across all spot BTC ETFs, starkly contrasting against the record-setting outflow day on Wednesday when all products experienced simultaneous outflows.

It is evident that BTC price movements are the primary drivers of spot ETF flows, with Wednesday’s outflows coinciding with BTC's fall below $60k and Friday's inflows aligned with a sudden surge in its price, and it appears likely they will remain the predominant factor behind ETF flows moving forward.

While bulls are hopeful that GBTC’s ability to buck the outflow streak may signal the instrument has found a natural equilibrium, the presence of a single inflow day alone is insufficient to confirm this speculation: there is little significance behind this one-time event without a continuation in GBTC inflows.

Given GBTC's hefty 1.5% management fee, which is six times higher than that of most issuers, it is often considered one of the best methods for shorting BTC.

Although it's conceivable that shares were created with the intention of lending them to short sellers, the high availability of GBTC shares for borrowing supports the notion that this may have actually been a bullish inflow.