Grayscale Investments loses $8.4 billion from GBTC as investors flock to new Bitcoin ETFs offered by major banks. Outflows signal increasing demand for alternative crypto funds.
Grayscale Investments has seen a substantial depletion of $8.4 billion from the Grayscale Bitcoin Trust (GBTC) since its transition into an exchange-traded fund (ETF) on January 11, 2024. The continuous outflows, notably, reached almost $600 million on February 29, marking the second-largest outflow day since the approval of the ETF by the US Securities and Exchange Commission.
Challenges for Grayscale GBTC Amidst Intensifying Competition
The significant outflows from Grayscale align with a growing demand for exchange-traded products offered by alternative providers. Last week alone, investors withdrew $610 million from Grayscale, but in contrast, other US Bitcoin ETFs experienced inflows of $436 million. The landscape is further evolving with more financial institutions introducing crypto-related funds.
Recent reports unveil the entrance of US banking giants Wells Fargo & Co and Bank of America into the scene, launching spot Bitcoin exchange-traded funds catering to wealth management clients. Additionally, Wall Street powerhouse Morgan Stanley has expressed interest in securing a spot in the Bitcoin ETF arena.
Expectations are high for the emergence of ETFs focusing on alternative cryptocurrencies, as crypto-centric entities like Coinbase and Ark Invest consider launching funds for assets like Ripple (XRP), Ethereum (ETH), and Chainlink (LINK). Ripple's CEO, Brad Garlinghouse, anticipates a domino effect, with more funds following the initiation of spot Bitcoin ETFs.
Explore more: A Comprehensive Guide to Altcoins
The initial wave of crypto ETFs is likely to extend beyond Bitcoin, with products tracking the price of Ethereum anticipated to debut. Although originally expected in May, Bloomberg analyst James Seyffart suggests that these Ethereum-focused ETFs may materialize later this year. The anticipation surrounding these approvals has driven the price of ETH from $1,629 on September 1, 2023, to a current value of $3,436.
Grayscale has yet to respond to BeInCrypto's inquiry regarding the outflows from its Bitcoin Trust. Earlier speculations from investors pointed to Grayscale's 1.5% management fee as a potential factor contributing to the initial outflows.
Understanding the Impact of ETFs on Demand and Supply
A consequential outcome of the surging demand for Bitcoin-tracking ETFs is the increased demand for Bitcoin itself. Miners, who generate approximately 900 BTC by successfully solving transaction block hashes, play a crucial role.
High demand prompts authorized ETF participants to notify the issuer, leading to the creation of new ETF shares backed by Bitcoin purchases. Conversely, a decrease in demand results in the redemption of shares, prompting the sale of Bitcoin. This process can deplete coins available on the open market until miners contribute to the circulating supply by selling newly mined coins.
Learn more: An In-Depth Guide to Bitcoin
Matt Hougan from Bitwise Asset Management, in a recent CNBC interview, highlighted this dynamic, emphasizing that the escalating demand from retail investors, institutions, and advisers is surpassing the rate at which new coins enter the market.