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GBTC's $25B liquidation sparks debate on impact to Bitcoin price

The approaching $25 billion liquidation of Grayscale Bitcoin Trust (GBTC) has ignited debates among experts about how it may affect Bitcoin’s price trend.

Chris J Terry, crypto analyst and founding partner of BTCdata Corporation, expresses caution and foresees potential flat or downward movements in Bitcoin’s price until the massive GBTC liquidation is completed.

“Looks like BTC price will continue flat/down until GBTC is liquidated, $25B of selling over the next few weeks,” Terry wrote on X, criticizing Grayscale’s decision to uphold ETF fees at 1.5 percent.

Likewise, BitMEX CEO Arthur Hayes adopts a cautious stance on Bitcoin’s current market dynamics, hinting at substantial downward pressure on the cryptocurrency. Hayes believes that Bitcoin is likely to fall below the $40,000 threshold, given its considerable impact on price fluctuations.

In a defensive move, Hayes disclosed that he has opted for a long position in put options with a $35,000 strike and a March 29 expiration date. He foresees the possibility of a market downturn, highlighting the upcoming U.S. Treasury quarterly refunding announcement on January 31 as a potential catalyst.

Galaxy Digital founder shows optimism

While some voices warned of market stagnation and flat or downward trends, others remained optimistic about investors transitioning to lower-fee exchange-traded funds (ETFs).

Mike Novogratz, founder of Galaxy Digital, believes that although some investors may sell their GBTC holdings, many will transition to other ETFs. He specifically cited Invesco’s BTCO ETF as an example, emphasizing its attractive annual fee of 0.39 percent.

Novogratz envisions a potential influx of traditional investors, particularly baby boomers, entering the cryptocurrency market. He also foresees increased opportunities for higher leverage with Bitcoin exposure, possibly reaching 4x or 5x leverage.

As the crypto community awaits the unfolding of GBTC’s significant sell-off, Novogratz also emphasized the ease of entry for traditional investors. The lowered barrier, coupled with increased leverage potential, showed a changing landscape in market dynamics.

Investors who used to be cautious about cryptocurrency exposure may now perceive the post-GBTC landscape as more attractive.

ETF success factors

Aurelie Barthere, principal research analyst at Nansen, also offered additional insights into the situation. Barthere projected that lower-fee ETFs are poised to attract increased inflows in the short term.

“ETFs and futures are totally different devices; we might count on futures to remain favored for buying and selling and hedging, and ETFs to be a go-to retail instrument, like in conventional finance,” said Barthere in an interview.

Barthere also underscores the importance of factors such as reputation, size, existing market presence and management fees in shaping the competitive landscape for Bitcoin spot ETF providers. As more affordable alternatives gain popularity, traditional market leaders may encounter challenges in retaining their dominance.

“Repute/measurement/current footprint + administration payment will most likely result in some leaders dominating the market,” she said.

JPMorgan analysts add to the discussion by suggesting that the success of recently introduced ETFs will hinge on fees and liquidity.

Given the relatively high 1.5 percent fees associated with GBTC, analysts are expecting substantial outflows which would lead to a shift towards the recently introduced ETFs. Investors who acquired discounted GBTC shares in anticipation of the discount to Net Asset Value (NAV) being eliminated are anticipated to contribute to the ongoing liquidation.

Analysts project significant outflows from GBTC, potentially reaching $3 billion, flowing into the emerging ETF landscape. However, the market may see more substantial outflows ranging from $5 billion to $10 billion if GBTC fails to align its fees with the 0.25 percent set by issuers such as BlackRock.