The "Whale" Turnaround in the Encryption World: From Bull Run Driver to Bear Market Source

Since its establishment, Grayscale has been an important institutional investor in the encryption field, providing compliant cryptocurrency investment channels for investors over the long term. However, on January 11, the situation dramatically changed when Grayscale's GBTC trust converted to a spot Bitcoin ETF. As of now, GBTC has seen a total outflow of $3.45 billion, becoming the only Bitcoin ETF in a net outflow state, which has caused continuous selling pressure on the market.

From "Known Whale" to the Source of Selling Pressure

Grayscale was once a significant institutional investor representative in the encryption world. As a subsidiary of Digital Currency Group (DCG), Grayscale has been providing compliant investment channels for investors through trust funds, with over 90% of its funds coming from institutional investors and retirement funds, before the emergence of the spot Bitcoin ETF.

On January 11, when GBTC converted to an ETF, its management scale reached 25 billion USD, making it the largest cryptocurrency custody institution at that time. Grayscale's portfolio includes mainstream assets such as ETH, BCH, and LTC, reflecting its robust investment style.

These trust funds were once seen as "one-way" investment tools, benefiting the spot market. During the 2020 bull run, Grayscale was even considered one of the main driving forces in the market, accommodating investors' expectations for a Bitcoin ETF.

Negative premium gradually eliminated

Since the news of the spot Bitcoin ETF from BlackRock in June 2023, the negative premium of GBTC has started to narrow. On July 1, 2023, the negative premium of the GBTC trust reached 30%, and in the subsequent ETF expectation speculation, this number gradually approached 0.

The existence of negative premiums has significantly impacted early investors in Grayscale Trusts, as these trust products lack a clear exit mechanism. Some investors, such as Three Arrows Capital, had bought large amounts of GBTC, betting that the negative premium would be eliminated once it transitioned to an ETF.

The market impact of Grayscale continues

After GBTC was converted to an ETF, it began to cause continuous selling pressure on BTC. Recently, the daily outflow from GBTC exceeded $640 million, setting a record for the largest single-day capital outflow. In contrast, the other 10 ETFs are all in a net inflow state.

It is worth noting that GBTC accounts for more than half of the trading volume of all spot Bitcoin ETFs, which means that the incremental funds brought in by the ETFs are still being used to hedge against the continuous outflow pressure from GBTC. The GBTC shares liquidated during the FTX bankruptcy are also one of the important factors contributing to the selling pressure.

Future Outlook

The management fee of 1.5% for GBTC is significantly higher than the fee range of 0.2%-0.9% for other ETFs, which may be an important reason for the outflow of funds. Currently, GBTC still holds over 500,000 BTC (approximately $20 billion), and market participants may wait for the right opportunity to accumulate chips.

This means that for a period of time in the future, the selling pressure from GBTC may continue to suppress the willingness for capital inflow. Once regarded as the "bull run engine," Grayscale has now become a potential risk factor.

For this rapidly developing industry, reducing excessive reliance on the layout of large institutions may be one of the most important experiences in this special cycle. Market participants need to view the role of institutional investors more rationally, recognizing that the same factor may have vastly different effects in different market environments.