Monday, July 19, $1.5 billion worth of Bitcoin shares on the market, price up or down? – BTC Direct

On July 19, $1.5 billion worth of Bitcoin shares of Grayscale will go on the market. These shares were bought in January and may only be sold after six months. JPMorgan analysts expect this to have a negative impact on the share price. Of course, not everyone agrees.

Bitcoin Shares Release Soon

Last week shared Nikolaos Panigirtzoglou of JPMorgan’s analysis: ‘Despite some improvement, our signals generally remain bearish. The sale of GBTC shares exiting the six-month lockdown period in June and July is additional headwind for bitcoin.”

He talks about GBTC, which stands for Grayscale Bitcoin Trust. Either the world’s largest fund for digital assets and through Grayscale, institutional investors can gain exposure to bitcoin through the fund’s shares. With high popularity, an investor pays a premium on top of the regular bitcoin price, but it is also possible that the shares are less popular, then the premium can even be negative.

Currently, the fund holds 654,600 bitcoins, which is almost 3.5% of the total available supply. There are now a total of 18,750,006.25 bitcoins in circulation.

Buy for bitcoin or dollars

Accredited investors can purchase GBTC shares directly at net asset value in daily private placements by depositing bitcoin or US dollars. The shares can only be sold on the secondary market after a period of six months. According to Meltem Demirors, the chief strategy officer of CoinShares, 140,000 bitcoin shares purchased from January can be unlocked this month. Her chart shows July 17, but that falls on a Saturday. The shares will therefore most likely be on the market on Monday 19 July.

one thing we haven’t discussed yet – the grayscale $ GBTC unlock schedule is looking really crusty

from mid-april to mid-june, 139,000 bitcoin worth of shares have unlocked. there’s another 140,000 bitcoin worth of shares that will unlock through the end of july

yes pic.twitter.com/Ha97Dh494O

– Meltem Demir ◎ rs (@Melt_Dem) June 23, 2021

The fund’s popularity exploded late last year when the premium on GBTC shares soared to an all-time high of 40% on December 17. A lot of investors felt the FOMO in their bodies and didn’t want to miss this boat. According to JPMorgan, the fund saw record inflows of $2 billion in December, followed by $1.7 billion in January.

Release of shares could lead to downward pressure

After unlocking on July 18, investors will have the option to liquidate their shares on the secondary market. Analysts at JPMorgan expect investors to sell at least some of their shares, which they say will cause “downward pressure on GBTC prices and bitcoin markets in general.”

Kraken analysts disagree. They envision a scenario where the bitcoin price actually rises due to the release of these shares. “Despite one being a singular fund of the other, bitcoin and GBTC are two different assets with different forces influencing their respective prices,” said Kraken Intelligence manager Pete Humiston.

Pay short positions

It is believed that many investing institutions have bought GBTC shares with bitcoin. The reason is to take advantage of the premium at which GBTC was trading. Kraken writes in their latest market report that these institutions have shorted bitcoin (on the usual exchanges) as a sort of hedge against bitcoin volatility.

This can mean two things, institutions that have tried to arbitrate on GBTC’s premium can keep their shares and their short positions, or they don’t put selling pressure on the market. They can also sell their shares to pay for their short positions, which in turn causes them to buy bitcoins.

“The complexity and duration associated with repositioning in the market amid the GBTC stock unlock is not black and white. By itself, it’s probably not significant enough to immediately affect the price of bitcoin, as some claim.”

Two screenplays by Willy Woo

Analyst Willy Woo also contributes. He describes two scenarios, one of which resembles Kraken’s.

Bullish: Investor buys bitcoin and moves it to Grayscale. In return, they get GBTC shares. They then short bitcoin in the mainstream market to hedge the risk of the investment in GBTC. In the current situation, they have earned returns from the short position and the premium on GBTC. Then the shares are released and sold and the short positions are closed. Woo calls this Bullish.

1) Derivatives

Playing the carry trade:
a) buy BTC spot, put it into Grayscale
b) receive GBTC shares
c) short BTC futures (to hedge risk)
d) earn yield from shorting BTC
e) earn the GBTC premium

Unlocking:
f) sell GBTC shares for USD
g) unhedge shorts

(g) is BULLISH

— Willy Woo (@woonomic) July 6, 2021

Bearish: If the GBTC shares are released and sold, the premium on GBTC will fall. That means that it is more attractive for investors to buy those shares, instead of buying bitcoin directly on the normal market.

2) Spot markets

When GBTC shares unlock and get sold, the GBTC Premium drops (share price drops relative to the BTC in the trust)

Investors now have more incentive to by GBTC shares rather than BTC, it diverts some of the buying pressure on BTC spot markets. This is bearish.

— Willy Woo (@woonomic) July 6, 2021

Discount on bitcoin shares makes GBTC more attractive

Right now the premium is negative 12.17% meaning GBTC shares are 12.17% cheaper than bitcoin. “Investors looking for long-term passive bitcoin exposure are probably better off buying GBTC over spot bitcoin,” said David Grider of investment research firm FundStrat.

Below you can see the premium on GBTC.