FTX's $1B Sale of Grayscale's Bitcoin ETF Sparks Major Outflow

• Grayscale Bitcoin Trust Suffers Over $2 Billion in Sales Following Conversion to ETF
• GBTC and the Rise of Bitcoin ETFs
• The Impact on Bitcoin's Price
• FTX's Strategy and Liquidation of Assets

Grayscale Bitcoin Trust Suffers Over $2 Billion in Sales Following Conversion to ETF

Since its transformation into an exchange-traded fund (ETF) earlier this month, sales exceeding $2 billion have been recorded for the Grayscale Bitcoin$42,260 -0.64% Trust (GBTC). An evident portion of this outflow can be traced back to FTX$3.28 -5.38%'s bankruptcy estate, which sold off 22 million shares, as supported by private data reviews and insiders' knowledge.

GBTC and the Rise of Bitcoin ETFs

January 11 marked the onset of trading for a series of spot bitcoin ETFs, following long-awaited approval by the U.S. Securities and Exchange Commission (SEC). However, the Grayscale fund, structured as a less appealing closed-end fund, had been in existence for ten years prior to this. When the SEC gave the go-ahead for its evolution into an ETF, the fund had already amassed nearly $30 billion in assets, alongside greenlighting 10 fresh bitcoin ETFs.

Although new funds from notable issuers like BlackRock and Fidelity have recorded inflows, GBTC has seen billions in bitcoin withdrawals. Private data inspections suggest FTX is primarily responsible for this, with the sales of 22 million shares, worth approximately $1 billion, reducing FTX's GBTC ownership to nothing.

The Impact on Bitcoin's Price

Bitcoin's (BTC) price has seen a downfall since the approval of ETFs, a clear contrast against the previously held optimistic expectations before the SEC ruling. Bitcoin ETFs were promoted as a simpler investment option for the average person, leading to high hopes for the price of BTC.

Conversely, bitcoin's value has dwindled. Theoretically, the selling pressure may alleviate now that FTX has offloaded their significant holdings, as the liquidation of holdings due to a bankruptcy estate is somewhat exceptional.

FTX's Strategy and Liquidation of Assets

A common tactic amongst large crypto trading entities, FTX capitalised on the price discrepancy between Grayscale trust shares and the net asset value of the underlying bitcoin within the fund. FTX held 22.3 million GBTC, valued at $597 million as of October 25, 2023, as stated in a filing from November 3, 2023.

On the first day of Grayscale's bitcoin ETF trading on NYSE Arca, January 11, the worth of FTX's GBTC holding rose to an estimated $900 million, with the trading session closing at $40.69.

Both Marex Capital Markets Inc. and Galaxy Digital, a crypto trading specialist involved in the sale of assets held by FTX's bankruptcy estate, refrained from commenting. Recently, a lawsuit against Grayscale alleging excessive fees was voluntarily dismissed by Alameda Research, a trading firm connected to FTX.

Edited by Jonathan Stoker