Grayscale reallocations overshadow positive Bitcoin Spot ETF inflows!

Thought of the week

Once again, we see that overly dominant market participants or an overly centralised asset allocation in the digital assets sector can cause temporary problems. Grayscale alone owns almost 90% of all bitcoins listed via the Bitcoin Spot ETFs. This means that the current reallocations, which we will discuss later in the newsletter, could initially cause ongoing problems. A better distribution of Bitcoin will begin, but the “transfer time” will continue to influence the market for a few more weeks.

Digital Asset News

The nine approved spot bitcoin exchange-traded index funds (ETFs) now hold a combined 95,000 bitcoin (BTC) after six full days of trading, with assets under management (AUM) totalling nearly $4 billion.
According to Eric Balchunas, a senior ETF analyst at Bloomberg, the inflow of capital into the recently launched ETFs has also outpaced outflows from the Grayscale Bitcoin Trust (GBTC). GBTC’s assets under management fell by a whopping USD 2.8bn in the first six days of trading.

Among the exchange-traded funds, both Fidelity (FBTC) and BlackRock’s iShares Bitcoin Trust (IBIT) recorded inflows totalling over USD 1.2 billion. Although FBTC has seen slightly higher inflows, IBIT currently has more AUM at $1.4bn than Fidelity at almost $1.3bn.

This underpins the strong demand for digital assets on the part of investors. Only the grayscale issue (reallocations due to high fees) is temporarily leading to negative price trends.

The CEO of Grayscale takes a contrary view:

Most of the spot bitcoin exchange-traded funds (ETFs) recently approved by the U.S. Securities and Exchange Commission (SEC) will not survive, says Michael Sonnenshein, the CEO of Grayscale Investment.

In an interview with CNBC on 18 January at the World Economic Forum in Davos, Switzerland, Sonnenshein predicted that most of the 11 approved Bitcoin ETFs are likely to fail.

The US Securities and Exchange Commission (SEC) officially approved 11 Bitcoin ETFs on 10 January, 10 of which began trading the next day. Many ETF issuers actively lowered their trading fees to increase competitiveness with other ETFs, with most of the approved ETFs setting their fees between 0.2% and 0.4%. Several providers of bitcoin spot ETFs also offered a temporary fee waiver.

Sonnenshein defended Grayscale’s fees for its bitcoin spot ETF, which are the highest on the market, and emphasised that only two or three bitcoin spot ETFs will remain permanently and the rest will be taken off the market:

“I think from our perspective, offering low fees may challenge the long-term interest for the asset class […] I don’t think the market will ultimately have these 11 spot products that we have now.”

Ripple CEO Brad Garlinghouse believes that the approval of several Bitcoin exchange-traded funds (ETFs) in the United States will pave the way for more comparable crypto investment products in 2024.

Speaking to CNBC correspondent Arjun Kharpal at the World Economic Forum in Davos, Switzerland, on 16 January, Garlinghouse was reluctant to explicitly predict that an ETF would soon be approved by the US Securities and Exchange Commission (SEC), but he expects an Ethereum ETF to get the green light in the near future as well.

“I think that’s a safe bet. I’m not going to put a time horizon on it, but I think there will certainly be more ETFs,” Garlinghouse said in the interview at the Filecoin Sanctuary, adjacent to the World Economic Forum site in Davos.

“I think the chairman of the SEC, Gary Gensler, has become a political liability in the United States. I think he is not acting in the best interest of the citizens. He is not acting in the best interest of long-term economic growth.” Replacing Gensler could ensure a positive price development.

Digital Asset Market

The majority of digital assets experienced setbacks last week. Although the “Bitcoin Spot ETFs” in the US continued to record significant inflows, it appears that these were primarily due to a shift from Grayscale to other providers. With over 600,000 Bitcoin, Grayscale holds by far the largest amount for an institutional investor. Due to the comparatively high fee structure (1.5% compared to ~0.3%), investors withdraw their bitcoins from the Grayscale Trust. To deposit them in one of the other spot ETFs, however, they must first be sold, as the ETFs are “cash-create” and dollars must be deposited rather than bitcoins directly. This results in greater selling pressure, which depresses market prices and slightly darkens market sentiment.

After the media “fireworks”, the market for digital assets is now cooling down a little, is looking for high and strong support zones and could start a new bullish upswing once the regrouping/consolidation has ended.

On a weekly basis, the market as a whole has once again gained ~-3.5%.

For the coming week: Altcoins could come into focus if the market shows slight positivity, especially in Bitcoin!

From a chart perspective, Bitcoin is now below the support zones that have formed and could test the $40,000 mark over the course of the week. Altcoins continue to hold at the “high price levels” and thus illustrate that the grayscale issue mentioned in the first section is keeping the market busy.

The next price targets in the event of a positive development: ~$42,500, ~$44,100, ~$45,000

The next price targets in the event of a negative trend: ~$40,000, ~$38,600 ~$37,000

If there are noticeable declines in Grayscale’s rebalancing, then Bitcoin could make a major positive price jump. Altcoins, which have experienced major setbacks, could also show increased volatility in a positive scenario. Until then, however, a cautious stance on the market and capital protection is the most sensible approach!

Weekly overview

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