The price of bitcoin tumbled to its lowest level last Thursday since the Securities and Exchange Commission’s (SEC) approval of spot bitcoin ETFs on 10 January.
Following the greenlight, the world's largest cryptocurrency has dropped over 11%, with its value stooping by 4.5% last Thursday, falling to a monthly low of $40,800.
This fall in value sat in contrast to predictions of crypto advocates who viewed spot ETF approvals as a pivotal development for bitcoin, solidifying its place as a large-scale traditional investment.
Further compounding challenges was $1.5bn flowing out of the Grayscale Bitcoin Trust (GBTC), revealed by a JP Morgan research report last Friday.
GBTC was touted as a key player in advocating for legal spot ETFs in the US and was converted to an ETF last week.
The report highlighted that those investing in GBTC – who over the last year had been buying at a marked discount to NAV position ahead of its ETF conversion – are now cashing in following its ETF conversion by exiting the bitcoin space entirely rather than shifting to cheaper spot bitcoin ETFs.
Nikolaos Panigirtzoglou, managing director of global markets strategy at JP Morgan, said: “We had previously estimated that up to $3bn had been invested into GBTC in the secondary market during 2023 in order to take advantage of the discount to NAV."
“If the previous $3bn estimate proves correct and given $1.5bn has exited already then there could be an additional $1.5bn still to exit the bitcoin space via profit taking on GBTC, therefore putting further pressure on bitcoin prices over the coming weeks.”
GBTC's challenges are further intensified by its hefty management fee of 1.5%. The report noted the ongoing outflows from GBTC are mounting pressure on the ETF to lower its fee structure.
The figure lies markedly above other key market players, with BlackRock’s iShares Bitcoin Trust (IBIT) and the Fidelity Wise Origin Bitcoin Fund (FBTC) both charging a competitive 0.25% fee.
Low fees explain the draw from investors, with Bloomberg data revealing that IBIT received $371m from investors last Wednesday, closely followed by FBTC, witnessing a record $358m inflows, the largest single-day amount since its inception last week.
BlackRock and Fidelity together have garnered 68% of the total inflows into the nine new ETFs in the market, amounting to nearly $2bn.
The report concluded that competition could pose a risk of further outflows from GBTC, with the ETF carrying the most expensive fee among its counterparts.
