How helpful is GBTC compared to the Bitcoin bull market?September 2023-1914:10:09If you already own the Grayscale Bitcoin Trust GBTC, do you still need a spot Bitcoin ETF?The answer is certainly yes, as the actual ETF is a more liquid product than GBTC. And GBTC is trying to convert this product into a true ETFThe current form of GBTC has some commonalities with potential ETFs
How helpful is GBTC compared to the Bitcoin bull market?
September 2023-1914:10:09
If you already own the Grayscale Bitcoin Trust GBTC, do you still need a spot Bitcoin ETF?
The answer is certainly yes, as the actual ETF is a more liquid product than GBTC. And GBTC is trying to convert this product into a true ETF
The current form of GBTC has some commonalities with potential ETFs.
When there is an inflow of funds, the trust will instead use cash to purchase Bitcoin, which brings some purchasing pressure to the market.
This means that we can try to answer a question using GBTC:What is the impact of spot Bitcoin ETFs on BTC?
The Gray Bitcoin Trust is one of the largest institutional entities holding Bitcoin. They control 625kBTC, which is equivalent to 3% of the token supply.
Most of the growth occurred in the months of 2020/2021.
However, despite this, the purchase of GBTC does not seem to be enough to drive market trends in a very short period of time.
This can translate into some lessons about the potential impact of spot Bitcoin ETFs:
- The daily inflow of funds must be very large in order to affect the price of Bitcoin.
- ETFs may help absorb liquidity, but they will not separately push up the price of Bitcoin.
To make the impact of ETFs more apparent, it is necessary to come up with some method to simulate how much liquidity is being sucked from the market.
Why choose GBTC?
Follow GBTC to obtain some data and understand the impact of spot Bitcoin ETFs on the market.
There is a question here that there are already spot Bitcoin ETFs available for investors to choose from. So why not use these to measure the potential impact of BlackRock's spot BTCETF?
The problem is that these existing ETFs are not based on the United States, which means they cannot access the same capital pool and only have a small amount of capital inflows.
The smaller the inflow, the fewer tokens purchased at once. This results in these tools not having any direct impact on the price of the token.
- 21Shares Bitcoin ETP (Europe) holds 73kBTC.
- Purpose Bitcoin ETF (Canada) holds 39kBTC.
- GBTC holds 625kBTC!
There is an order of magnitude between GBTC and the second largest spot ETF tool outside the United States.
Therefore, if there are some noteworthy impacts, they are more likely to be seen in the purchase of GBTC.
GBTC publishes their Bitcoin holdings every day, which means we know how much they purchased the day before.
The question is: Is the spot BTC purchased from GBTC large enough to dominate the market in one day?
To answer this question, we will focus on a specific period of time, namely the months during which most of Bitcoin's growth occurred during the previous bull market.
Daily capital inflows during the bull market period
Ignore the V-shaped recovery brought by COVID-19. The majority of Bitcoin's growth in the third halving cycle occurred approximately between June 2020 and February 2021.
During this period, Bitcoin increased from $10000 to $40000, with a return rate of 300%.
The Gray Bitcoin Trust Fund also acquired a large amount of Bitcoin during this period.
The holding of GBTC has almost doubled, from 365000 BTC to 655000 BTC.
This is equivalent to locking in 1.3% of BTC supply in just a few months.
From this perspective, an average of 1.3% of Bitcoin's 1-day active supply (i.e. tokens moved on the chain in the past day) is locked in within one day.
The biggest question now is whether such purchases directly affect the price of Bitcoin.
Just like last week's GLDETF impact on gold, determining causal relationships is a tricky task. But at least you can try to establish correlation.
How does it affect the daily price trend of Bitcoin?
We know the daily coin traffic of GBTC, and we can see how it relates to the daily revenue of Bitcoin.
If the daily purchase volume of GBTC is indeed strong enough to drive the market, the higher the purchase volume, the greater the likelihood of Bitcoin rising on the same day.
Therefore, sketching the relationship between GBTC purchase volume and BTC return rate should give an upward and rightward shape.
There is basically no correlation between the two.
Even on the day when GBTC purchases 5000+BTC, the market can still rise by 8% or fall by 12%.
One way to view this fact is that Bitcoin is a highly liquid market.
Therefore, when someone makes a large purchase, some actions need to be taken to disrupt the price.
Please remember that GBTC hopes to make the purchase as smoothly as possible.
It is not in their interest to make Bitcoin more expensive when purchasing it.
Therefore, if a spot Bitcoin ETF is launched, additional fluctuations are expected, but significant daily price fluctuations are meaningless.
The result is likely to be similar to slowly boiling a frog. What really matters is how much regular net inflows we can expect from Bitcoin ETFs, as this will provide someContinuous purchasing pressureAbsorb some liquidity tokens.
This means that the model we need is how much liquidity we expect the spot Bitcoin ETF to absorb and its relationship with Bitcoin liquidity supply.
This may be the key to quantifying the impact of spot BTCETF.
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