The Rise and Fall of Bitcoin Whale Grayscale: From Bull Run Momentum to Bear Market Risks

Grayscale has been an important institutional investor in the cryptocurrency space since its establishment. As a subsidiary of Digital Currency Group (DCG) founded in 2013, Grayscale provides compliant cryptocurrency investment channels for investors through trust funds, with over 90% of its funds coming from institutional investors and retirement funds.

However, after the Grayscale GBTC trust converted to a spot Bitcoin ETF on January 11, the situation underwent a dramatic change. So far, GBTC has seen a cumulative outflow of $3.45 billion, making it the largest source of selling pressure in the short term. In contrast, the other 10 ETFs are in a state of net capital inflow. This means that Grayscale GBTC has become the main factor leading to the overall capital outflow from Bitcoin ETFs.

The Former Crypto Whales

Before 2020, Bitcoin ETFs were regarded as the main channel for off-market incremental funds to enter the market. With the obvious entry of institutional investors like Grayscale, they began to shoulder the expectations people had for Bitcoin ETFs and even became a core force driving the bull run.

Against the backdrop of Bitcoin ETF applications being delayed in approval, Grayscale has established itself as almost the only compliant entry channel. It effectively acts as an intermediary for qualified investors and institutions to enter the cryptocurrency market, providing a direct entry channel for incremental over-the-counter funds.

Gradual Narrowing of Negative Premium

Since the news about the spot Bitcoin ETF came out in June 2023, the negative premium of GBTC has started to gradually narrow. On July 1, 2023, the negative premium of the GBTC trust reached as high as 30%, ETHE also reached 30%, and the negative premium of the ETC trust exceeded 50%.

However, in the ETF expectation game over the past six months, the negative premium of GBTC has continued to narrow, rising from 30% to nearly 0, and most of the funds that have laid out in advance have reached the time to take profits and exit.

From the perspective of negative premium, this has caused huge losses to private investors who once participated in the GBTC and ETHE trusts in the primary market. This is because Grayscale's cryptocurrency trusts do not support direct redemption of the underlying assets, nor do they have a clear exit mechanism.

When does the influence of grayscale end?

After the GBTC trust successfully converted to a spot ETF on January 11, it began to cause sustained selling pressure on Bitcoin. As of now, GBTC has seen a daily outflow of over $640 million again, setting the largest single-day capital outflow record to date.

As of January 23, the total trading volume of the top 7 spot Bitcoin ETFs in the first 7 trading days is approximately $19 billion, with GBTC accounting for more than half of that. This indicates that the incremental funds brought in by ETFs are still, overall, in a phase of hedging against the continued outflow of funds from GBTC.

One important reason for the outflow of funds from GBTC is its management fee of 1.5%, which is much higher than the fee levels of 0.2% to 0.9% for other ETF products.

To some extent, the future will be a game of clear cards. GBTC still holds over 500,000 Bitcoins (, worth about $20 billion ). Institutions and funds waiting to enter the market will look for the right timing to accumulate chips. This means that in the near future, the selling pressure from GBTC may still overwhelm the willingness of funds to actively flow in.

Looking back, Grayscale, which was once seen as the engine of the 2020 bull run, has now not only lost its driving force but has also become a potential risk point for the industry. For the rapidly developing cryptocurrency sector, breaking the obsession with large institutions and objectively viewing the role of institutional investors may be one of the most important lessons in this unique cycle.