JPMorgan Forecasts $2.7 B Outflows from GBTC ETF Conversion

2023-12-07, 08:59

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## TL; DR

JPMorgan analysts predict that there will be at least $2.7 billion outflows after the ETF conversion.

A large outflow after the ETF conversion may lead to a sharp decline in the value of <a href="/uk/price/bitcoin-btc" target="_blank" class="blog_inner_link">Bitcoin</a>.

The Binance settlement leads to the closure of the one-year long US investigation on the exchange.

## Introduction

The value of the [Grayscale Bitcoin Trust (GBTC) ](https://www.gate.io/blog_detail/158/the-1st-cryptocurrency-investments-grayscale-what-is-gbtc "Grayscale Bitcoin Trust (GBTC) ")shares increased significantly after the U.S. The Securities and Exchange Commission (SEC) did not appeal against the D.C. Circuit Court of Appeals verdict, ordering it to review Grayscale Spot bitcoin application.

As the [SEC is in the process of reconsidering the Grayscale spot bitcoin application](https://www.gate.io/blog_detail/3357/analyzing-the-sec-s-appeal-and-its-impact-on-grayscale-bitcoin-etf-ruling "SEC is in the process of reconsidering the Grayscale spot bitcoin application") many investors have shown much interest in Grayscale Bitcoin Trust (GBTC) shares. The market’s expectation of an approval of Grayscale BTC ETF application has enticed investors to purchase its GBTC shares, currently trading at a 10% discount. This article analyzes the possible outflows when GBTC converts to an ETF, if the SEC approves Grayscale’s spot bitcoin ETF.

Read also: [GBTC vs Bitcoin: Is the Discount to NAV Worth It?](https://www.gate.io/explore/gbtc-bitcoin-discount-nav "GBTC vs Bitcoin: Is the Discount to NAV Worth It?")

## Analysts Predict $2.7 Billion Outflow when GBTC Converts to ETF

JPMorgan analysts think that GBTC traders may cash out after its ETF conversion. They believe that the investors may sell GBTC shares worth $2.7 billion. Nonetheless, that will depend on the shares’ inflows starting in 2023.

JPMorgan has made that assessment as it anticipates that Grayscale bitcoin Trust will be [converted into a spot bitcoin ETF in 2024](https://www.gate.io/blog_detail/3424/how-the-highly-anticipated-spot-bitcoin-etf-impacts-the-market "converted into a spot bitcoin ETF in 2024"). Since the ETF – GBTC is trading below the net asset value (NAV) once the SEC approves it, speculative traders may be able to profit from the difference between the current price and NAV.

The possibility of the above scenario has created concern for JPMorgan as it fears a potential withdrawal of more than $2.7 billion. Such a large outflow is likely to drive the <a href="/uk/price/bitcoin-btc" target="_blank" class="blog_inner_link">Bitcoin price</a> down.

Nonetheless, the $2.7 billion may find its way back into bitcoin-related instruments, especially other spot BTC ETFs. If the funds <a href="/uk/price/flow-flow" target="_blank" class="blog_inner_link">Flow</a> into other spot bitcoin ETFs that might mitigate any adverse effect on the bitcoin price. Generally, though, a possibility of a BTC price drop after the ETF conversion is high.

It is important to note that the GBTC investors have been purchasing the asset at a 10% discount. This simply means that the value of the GBTC is  10% lower than the bitcoin market price. Notably, the GBTC was trading at less than 10% discount starting in July this year. Since the beginning of the year the discount was around 46%.

The other major reason why the GBTC shares have been trading at a discount is that the investors cannot redeem them. Instead, they can sell them to other prospective buyers. Before July 2021 the shares used to trade at a premium, but were negatively affected by the credit crunch set in around that time.

That sharp fall in the discount shows that investors are expecting an ETF approval early next year. Also, the JPMorgan calculations were based on the assumption that the investors have been purchasing the GBTC for speculative purposes. On the same note, the Grayscale Bitcoin Trust would need to lower its fees to reduce the amount of outflows and to keep its dominance in the market.

[Grayscale GBTC](https://www.gate.io/article/18495 "Grayscale GBTC") fees should match that of ARK 21Shares Bitcoin ETF, currently at 80 basis points. Meanwhile, the current GBTC fee stands at 200 basis points. Regarding this, the JPMorgan analysts have assumed that any approval of spot bitcoin ETF application may lead to strong competition with other Bitcoin investment products which may force the fees to drop sharply.

## Binance Settlement with US Agencies a Positive Development for the Exchange and the Industry

[As per the Block](https://www.theblock.co/amp/post/264283/jpmorgan-binance-settlement-positive-crypto "As per the Block"), Nikolaos Panigirtzoglou, a top analyst at JPMorgan said that the settlement between Binance and US agencies is positive for the industry as a whole as it has reduced uncertainty surrounding the exchange.

First, Panigirtzoglou said that the settlement may help to keep trading volume on the exchange high. [He said](https://www.theblock.co/amp/post/264283/jpmorgan-binance-settlement-positive-crypto "He said"), “We see the prospect of settlement as positive as uncertainty around Binance itself would subside and its trading and <a href="/uk/price/bnb-bnb" target="_blank" class="blog_inner_link">BNB</a> Smart Chain business would benefit."

He explained further, "For crypto investors the prospect of settlement would see the elimination of a potential systemic risk emanating from a hypothetical Binance collapse.”

Read also: [Can Spot Bitcoin ETFs Become Market Catalysts if Approved?](https://www.gate.io/blog_detail/3076/can-spot-bitcoin-etfs-become-market-catalysts-if-approved "Can Spot Bitcoin ETFs Become Market Catalysts if Approved?")

Although Binance has to pay $4 billion as part of the settlement there will be finality on the case. It also allows the exchange to continue operations as before. Basically, this settlement has ended a year-long legal investigation on Binance’s operations.

After the settlement, the most immediate role of the newly appointed Binance CEO, Richard Teng, is to assure the exchange’s customers that everything is under control and that they should remain calm.

Through X, [Teng assured the customers](https://twitter.com/_RichardTeng/status/1727066202047164562 "Teng assured the customers") that he will work alongside the US regulators to drive Binance exchange forward. He wrote, “My focus will be on:

1) Reassuring users that they can remain confident in the financial strength, security and safety of the company

2) Collaborating with regulators to uphold high standards globally that foster innovation while providing important consumer protections

3) Working with partners to drive growth and adoption of Web3.”

## Conclusion

Investment analysts at JPMorgan have predicted that GBTC will experience at least $2.7 billion outflows after the ETF conversion. The assumption is that most GBTC investors purchased the shares for speculative purposes since they were selling at less than 10% discount. Large outflows from GBTC may result in a sharp decrease in the value of bitcoin.

<div class="blog-details-info">
<div>Author:** Mashell C.**, Gate.io Researcher
<div class="info-tips">\*This article represents only the views of the researcher and does not constitute any investment suggestions.
<div>\*Gate.io reserves all rights to this article. Reposting of the article will be permitted provided Gate.io is referenced. In all cases, legal action will be taken due to copyright infringement.
</div>

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