Bitcoin down 20% from post-ETF highs

According to media data, since the transition of Grayscale Bitcoin Trust to an ETF on January 11th, there has been a whopping $2.8 billion outflow as of last Friday. The other nine newly listed physical Bitcoin ETFs collectively attracted approximately $4 billion in inflows, with BlackRock and Fidelity Investments each drawing in over $1 billion. However, Grayscale's GBTC remains the largest with a staggering $22.9 billion in assets.

The significant outflow from Grayscale is closely tied to its high fees. Currently, with intense competition among Bitcoin ETF issuers, many are lowering fees to attract investors. Despite Grayscale reducing its management fee from 2% to 1.5%, it remains several times higher than its competitors. Some issuers even offered zero management fees as a promotional strategy during the initial months of their Bitcoin ETF listings. Grayscale's CEO argues that the 1.5% fee is justified considering the fund's liquidity, minimal spread, and a solid track record over the past decade.
The surge in fund outflows indicates that some investors are clearly not buying Grayscale's reasoning, and the fee differential is a tangible concern. However, despite such expensive fees, why do many investors still hold GBTC? One significant reason is taxation:
- GBTC, formerly a Bitcoin Trust, was established in 2013 as a way for investors to gain exposure to Bitcoin without directly purchasing and holding the cryptocurrency. However, investors in Bitcoin Trust couldn't easily convert their holdings into Bitcoin, leading to relative premium or discount trading against the underlying asset.
- Since early 2021, GBTC traded at increasingly higher discounts, reaching nearly 50% in December 2022. After the transition to an ETF, the discount has narrowed to almost zero.
- Many GBTC investors are likely sitting on substantial profits, especially those who bought during the period of significant discount. They not only benefited from Bitcoin's rise in the past year but also gained additional profits from the elimination of the discount. This might be the courage behind Grayscale's decision to charge the highest management fee in the industry.
Since the launch of Bitcoin spot ETF on January 11th, Bitcoin has shown a classic "sell the fact" pattern. This Tuesday, cryptocurrencies experienced another downturn, with Ether dropping over 6% in 24 hours and Bitcoin falling around 2%, briefly dipping below $39,000.

According to analysts at JPMorgan, investors taking profits after the rise in GBTC prices and shifting to lower-cost competitors have weighed on the cryptocurrency market.
Another crucial factor is the sell-off by FTX. Coinglass data shows that since the launch of the Bitcoin ETF, the liquidation volume of Bitcoin long positions has been significant, but Tuesday's data indicates a noticeable decrease, suggesting that the initial sell-off may be slowing down.