Grayscale Trust May Lose $2.7B in BTC If ETF Conversion Approved: JPMorgan

• Grayscale Bitcoin Trust Shares Acquired at Deep Discount on Secondary Market
• JPMorgan Estimates Net Inflow of $2.5 Billion into GBTC
• Potential Impact on Bitcoin Prices
• Balance of Risks for Bitcoin Prices
• Impact on Broader Investor Base

Grayscale Bitcoin Trust Shares Acquired at Deep Discount on Secondary Market

A notable quantity of Grayscale Bitcoin$42,260 -0.64% Trust (GBTC) shares have been obtained on the secondary market this year at a significant markdown to the net asset value (NAV). This is in light of the expectation that the trust's transition to an exchange-traded fund (ETF) will receive the green light from the U.S. Securities and Exchange Commission (SEC), according to a research report by JPMorgan (JPM) on Thursday.

JPMorgan Estimates Net Inflow of $2.5 Billion into GBTC

The financial institution calculates that GBTC has seen a net influx of about $2.5 billion since the beginning of the year, a figure that jumps to $2.7 billion when considering the covering of short interest. JPMorgan speculates that the bulk of this investment was speculative, with investors anticipating GBTC's conversion to an ETF.

Potential Impact on Bitcoin Prices

Should this anticipated conversion occur, the research predicts that this $2.7 billion may be withdrawn from GBTC as these investors look to capitalize on their profits. If this $2.7b exits entirely the bitcoin space then such an outflow could potentially exert significant downward pressure on bitcoin prices, stated analysts led by Nikolaos Panigirtzoglou.

However, the research provides another possible scenario, If instead most of this $2.7b shift into other bitcoin instruments such as the recently approved spot bitcoin ETFs post SEC approval, which is our best estimate, then any adverse market effect would be more contained.

Balance of Risks for Bitcoin Prices

JPMorgan continues to caution that the balance of risks for bitcoin prices is skewed to the downside as some of this $2.7b is likely to completely exit the bitcoin space.

Further, the report suggests that more than $2.7 billion could potentially be withdrawn from GBTC if its fee is not aggressively reduced following its transformation into an ETF.

Impact on Broader Investor Base

Spot Bitcoin ETFs are expected to open up cryptocurrency to a larger investor base as they are introduced post SEC approval.

Edited by Jonathan Stoker