Author: Nancy, PANews

The first batch of Bitcoin spot ETFs in the United States had a strong start on the first day of listing, with a record-breaking trading volume of $4.6 billion, nearly half of which came from GBTC. However, behind the high trading volume of GBTC, concerns have been raised in the market about potential fund selling and outflows, as well as the significant selling pressure that may arise after the upgrade to spot ETF.

Looking at the performance of the first day of listing for Bitcoin spot ETFs, GBTC contributed a trading volume of $2.09 billion, far exceeding traditional financial institutions such as BlackRock, Fidelity, and ARK. In response to this, Bloomberg ETF analyst James Seyffart believes that a large portion of these trading volumes involve selling GBTC and temporarily buying into other ETFs.

It is important to note that trading volume does not necessarily represent investor fund inflows or outflows. According to the settlement trading method of the funds, the specific net inflow/outflow situation of these products may not be known until Friday. However, with GBTC charging a management fee of 1.5%, it has disclosed the highest fee ratio to date, which seems to pose a challenge in terms of competitiveness compared to other competitors.

However, ETFs with lower fees are not necessarily the main factor for investors' choices. GBTC, with its first-mover advantage, is favored by institutional investors due to compliance and arbitrage opportunities, and has become the largest Bitcoin ETF with assets under management now reaching approximately $46 billion. Considering factors such as product liquidity, GBTC may still be a preferred choice for investors. For example, the world's largest gold ETF, SPDR Gold Trust, also did not gain market share based on the lowest fees.

In addition, with the upgrade of GBTC, the "unlocking" of over 620,000 bitcoins by Grayscale may also subject the market to significant selling pressure, especially after the brief surge and rapid decline in Bitcoin prices following the debut of the Bitcoin spot ETF.

As a trust fund product similar to ETFs, GBTC is favored by institutional investors due to compliance and arbitrage opportunities. In the past, products with a similar structure to GBTC had one-way flow, meaning that the cryptocurrency assets originally deposited by investors could not be redeemed. According to data from Nonfungible, as of January 12th, Grayscale held 624,800 bitcoins, accounting for 3.18% of the circulating supply of bitcoins, with an average holding cost of approximately $12,800. Based on the current price of Bitcoin, holders have already gained several times their investment, so it is difficult to rule out the possibility that some investors may choose to realize profits and exit immediately.

Meanwhile, with the conversion of GBTC to spot ETF, GBTC will no longer trade at a significant discount or any premium, which may lead many unprofitable holders to seek cashing out. According to Ycharts data, as of January 10th, the discount of GBTC relative to its net asset value (NAV) has narrowed to -1.9%. Historical data shows that since February 2021, the trading price of GBTC has consistently been lower than the price of the bitcoins it holds, and in December 2022, it hit a historical low of nearly 50%.

Despite the certain selling pressure facing Bitcoin, the substantial capital gains tax may to some extent reduce the likelihood of investors exchanging GBTC for Bitcoin. According to the requirements of the US Internal Revenue Service, short-term capital gains are taxed at ordinary income tax rates, ranging from 10% to 37%; long-term capital gains benefit from lower tax rates, with a potential maximum tax rate of 20%. Bitcoin ETFs can avoid the capital gains tax brought about by directly holding Bitcoin, which also means that GBTC holders may not necessarily consider switching to a cheaper Bitcoin ETF.

In conclusion, the market is no longer dominated solely by Grayscale, as the entry of traditional mainstream institutions such as BlackRock has opened the door for traditional funds to enter, adding more variables to the competition for this Bitcoin spot ETF.

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