Grayscale Investments is preparing to “unlock” a gigantic crypto fund allowing the sale of shares worth up to 40,000 Bitcoins.
The Grayscale Bitcoin Trust (GBTC) is the world’s largest crypto fund and consists of holdings amounting to 650,000 BTC. That amounts to more than $21 billion – or roughly 3% of the total supply of Bitcoin.
The trust was launched in 2013 to offer investors exposure to crypto “in the form of a security without the challenges of buying, storing, and safekeeping digital assets”.
Anyone who bought shares in the trust at the beginning of 2021 was subject to a six-month lock-in period during which they could not sell their holdings.
Some analysts fear that the unlocking will spark a sell-off and drive the price of Bitcoin downwards – with the most pessimistic commentators fearing the great unlocking could spark a crypto crash.
Kirill Suslov, CEO of trading app TabTrader, was more measured in his analysis.
He said: “Price pressure may never actually be realized. It depends on who the investors are.”
“Usually, institutions rebalance their portfolio according to the mandate. So if they are underwater, because the Bitcoin price has dropped, they will actually have to buy more to keep the mandated allocation to this asset class.”
The first tranche of stock will be unlocked on Sunday July 18, when the equivalent of more than 16,000 BTC is expected to become available to be sold.
However, this does not necessarily mean that a vast amount of Bitcoin will be dumped on the market because the shares are worth a portion of the total holdings within the fund. When investors sell, they will not be offloading crypto but trading shares in the GBTC fund.
Says Laurin Bylica, Co-Founder of a decentralized crypto finance project,www.TheStandard.io: “We have to notice that it is not BTC getting unlocked, as it’s just the Grayscale shares (GBTC), and as the trust has no redemption mechanism, GBTC cannot sell its Bitcoin holdings.”
“So the unlocking of GBTC shares should not move the spot price of BTC. However, misleading and complex information lets investors worry and, therefore, can create short-term bearish anxiety.”
“Additionally, a sell-off of GBTC could put additional pressure on Grayscale to increase their share buyback strategy to lower the discount to the NAV of the trust and medium-term, create a bullish trend for GBTC shares.”
JP Morgan analysts previously predicted that some investors are likely to sell a portion of their shares, which would cause “downward pressure on GBTC prices and on bitcoin markets more generally.
“Despite some improvement, our signals remain overall bearish,” strategists wrote in a note last month. “Selling of GBTC shares exiting the six-month lockup period during June and July has emerged as an additional headwind for Bitcoin.”
However, Pete Humiston, manager of Kraken Intelligence – the exchange’s research department – suggests that the unlocking could actually be good news for Bitcoin.
“Despite one being a single-asset fund of the other, BTC and GBTC are two distinct assets with different forces influencing their respective prices,” he said.
He went on to say that “the trading strategies commonly used by institutional investors leads us to conclude that the event could be mildly positive for the Bitcoin price”.
Analysis from Kraken Intelligence suggested that “most of the shares that will be unlocked” are owned by large institutions that are likely to have shorted Bitcoin to shield against volatility. This could mean there will be no large-scale sell-off and therefore the effect of the GBTC unlocking may not be “significant enough to immediately impact BTC’s price like some claim”.
Grayscale Investments is the world’s largest digital currency asset manager and manages funds worth more than $29.6 billion. Grayscale GBTC launched in 2013 and was the first publicly traded Bitcoin fund in the U.S. It later became the first crypto fund to become a fully-fledged company reporting to the SEC.
To date, there is only one other SEC-reporting crypto fund, with a name that should seem familiar: the Grayscale Ethereum Trust.