Why a 10% Drop in Grayscale's Bitcoin ETF Tuesday Shouldn't Rattle Investors (2024)

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Why a 10% Drop in Grayscale's Bitcoin ETF Tuesday Shouldn't Rattle Investors? ›

Grayscale's Bitcoin Trust (GBTC), the second-largest spot bitcoin exchange-traded fund (ETF) by assets, lost 11% of its value Tuesday. But investors shouldn't worry, Grayscale said. The decline was largely expected, as 10% of the bitcoin held by the fund was spun off to create the Grayscale Bitcoin Mini Trust.

But its assets have shrunk by more than half from their peak in November 2021, in large part because the trust charges a 1.5% fee while bitcoin funds offered by BlackRock, Fidelity Investments and others charge next to nothing. Investors have yanked a net $16 billion from GBTC since Jan.

Grayscale's high management fees led investors to flock to other ETF issuers, according to a crypto trader. Grayscale reportedly had to sell Bitcoin holdings to pay back investors. The initial days of Bitcoin ETF trading saw Grayscale facing a $579 million loss.

Grayscale Bitcoin Trust ETF is not only a convenient way to invest in Bitcoin but also a very large and popular ETF in its niche. As of June 2024, it averaged about 5.5 million shares traded daily and managed more than $19.13 billion in assets under management (AUM).

Fees tend to be higher than other ETFs. Investors do not own the cryptocurrency directly, and they must defer to the fund's management strategy. Unlike cryptocurrencies, ETFs can only be traded during market hours. Crypto markets on which the ETFs are based still largely unregulated.

“Investors have been wanting to either take gains on their portfolio, or arbitragers coming out of the fund, or people unwinding positions that were part of bankruptcies through forced liquidation.” Market commentators argue that the bankruptcy of crypto giant FTX has played a significant role in the selloff of GBTC.

Grayscale Bitcoin's risk of distress is under 9% at the present time. It has tiny likelihood of undergoing some form of financial distress in the near future.

Grayscale is not actively “dumping” Bitcoin on the market. Instead, investors are selling GBTC shares, which means Grayscale has to sell the equivalent amount of Bitcoin to manage the fund. This is not a malicious act but reflects how ETFs work.

Grayscale has by far the highest Bitcoin ETF fee (1.50%) of any approved Bitcoin ETF. Premiums or Discounts: GBTC can trade at significant premiums or discounts to the underlying Bitcoin price, affecting investment value. Less Liquidity: Being an OTC product, it lacks the same level of liquidity as a standard ETF.

The reasons for GBTC's outflows were plenty. Many traders had piled into the ETF ahead of its conversion into an ETF in January to profit from the reduction in its discount to net asset value. After the conversion, they took their profits, fueling outflows from the fund.

Who are the largest holders of GBTC? ›

According to the latest TipRanks data, approximately 88.22% of Grayscale Bitcoin Trust (GBTC) stock is held by retail investors. Who owns the most shares of Grayscale Bitcoin Trust (GBTC)? Cathie Wood owns the most shares of Grayscale Bitcoin Trust (GBTC).

Given the current short-term trend, the stock is expected to fall -19.59% during the next 3 months and, with a 90% probability hold a price between $33.74 and $43.09 at the end of this 3-month period.

The Grayscale Bitcoin Trust price prediction for next week is between $ 75.48 on the lower end and $ 87.48 on the high end. Based on our GBTC price prediction chart, the price of Grayscale Bitcoin Trust will increase by 15.91% and reach $ 87.48 by Jul 08, 2024 if it reaches the upper price target.

There are several benefits to owning the actual Bitcoin by purchasing through a cryptocurrency exchange. In some situations, the ETFs offer investors all they need. The decision between the two will come down to personal preference and technological savvy.

It could also be a scam if you are told “it's as good as cash.” Crypto is not protected or regulated like cash or the US dollar. Crypto is volatile and a substantial risk. Invest only what you can afford to lose. Crypto scammers are experts at getting you to buy their digital assets.

Grayscale has seen outflows of about $17.4 billion since the ETF was converted from a trust in January, according to data compiled Bloomberg, as some investors appear to have shifted assets from GBTC into new, lower-cost funds offered by companies such as BlackRock and Fidelity.

The current Grayscale Bitcoin Trust ETF (BTC) [GBTC] share price is $46.53. The Score for GBTC is 42, which is 16% below its historic median score of 50, and infers higher risk than normal.

The reasons for GBTC's outflows were plenty. Many traders had piled into the ETF ahead of its conversion into an ETF in January to profit from the reduction in its discount to net asset value. After the conversion, they took their profits, fueling outflows from the fund.