JPMorgan: If GBTC Converts to an ETF, It Could Face Outflows of $2.7 Billion.

Indra55

JPMorgan: GBTC Could Face $2.7 Billion Outflow Once Converted to ETF

The current influx of funds into GBTC is speculated to be for cashing out in the event of an ETF conversion. Since the beginning of this year, traders have been buying Grayscale's GBTC as its trading price has consistently been at a discount (lower than the potential value of the Bitcoin it holds). This may be in anticipation of capitalizing on the price difference when converting to a physical Bitcoin ETF.

This suggests that many GBTC traders may cash out after the conversion to an ETF. Considering this, analysts at JPMorgan have studied the inflows into GBTC since 2023 to calculate the potential stock value that could be sold after conversion, estimating it to be around $2.7 billion.

JPMorgan analysts state that if most purchases are driven by speculation about GBTC converting to an ETF, investors are likely to profit and exit the market after the fund's conversion. The outflow of funds is because investors apparently purchased GBTC at a significant discount in anticipation of the ETF conversion and intend to profitably exit after the conversion (theoretically, there should be no room for premium or discount for an ETF).

Currently, GBTC is trading at a discount of 9.77%, the first time since July 2021.

The $2.7 billion outflow is the minimum estimated value by JPMorgan analysts. They mention that if GBTC's current 2% fee is not substantially reduced after the ETF conversion, the outflow could ""substantially increase.""

The report notes: Once the SEC approves a Bitcoin spot ETF in the U.S., we expect competition to intensify, and the average fees for Bitcoin ETFs will approach those of gold ETFs, currently averaging around 0.5%.

Ark & 21Shares have become the first to publicly disclose the fees for a Bitcoin spot ETF, indicating a fee of 0.8% in their previous application. Co-founders of 21Shares mentioned in an interview that the inherent complexity of spot products listed in the U.S. led to the higher 0.8% fee.

This also highlights the need for GBTC to reduce fees to avoid more severe fund outflows and maintain its dominance as the largest and most liquid Bitcoin fund.

Analysts point out: Over time, investors tend to favor the most cost-effective and liquid ETFs.

Fund outflows pose downside risks to the crypto market

Analysts note that if this $2.7 billion indeed exits the market entirely, such capital outflows ""would certainly exert significant downward pressure on Bitcoin prices."" However, they anticipate that most of the funds will move to other Bitcoin products, such as other Bitcoin spot ETFs approved by the U.S. Securities and Exchange Commission (SEC), which would mitigate the negative impact on the market.

JPMorgan estimates that the current $23 billion in GBTC assets will decrease to $20 billion, while other funds will increase from $5 billion to $8 billion.

However, there is still a possibility that some funds could leave the Bitcoin-related market, so the risk remains skewed to the downside.

In recent days, there have also been reports that Grayscale has been meeting with officials from the U.S. Securities and Exchange Commission's (SEC) Division of Trading and Markets, continuing to seek approval for its Grayscale Bitcoin Trust (GBTC) to convert into a Bitcoin spot ETF.

Iti9

The outflow of funds is quite substantial.

Jiten171

Didn't expect it to be so much already flowing out.

Kitu11

Is it like banks, always willing to take in money but hesitant to let it out?

Kabir903

JPMorgan will still be observing how things unfold.