Upcoming $1.4B Grayscale Bitcoin Unlock Could Collapse Bitcoin


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As Bitcoin struggles around the $30,000-$32,000 range after a huge price drop in May, another major bearish event looms over Bitcoin and could be the big catalyst that tanks it below the $30K support.
A total of nearly 41,000 BTC will be unlocked in July, amounting to nearly $1.4 billion in notional value. The biggest of these unlocks will be on July 18th when 16,240 BTC will be available due to the release of the six-month lock-in period for GBTC shares.
While many Bitcoin promoters are trying to keep this news hush-hush, this is something everyone should be aware of. Hence, why I’m writing about it.
What Is The GBTC Unlock?
Grayscale Bitcoin Trust is the largest traded crypto fund in the world, owned by leading crypto asset manager Grayscale Investments, LLC. They currently hold 654,600 BTC tokens worth more than $21.56 billion. This amounts to 3.11% of Bitcoin’s maximum supply of 21 million tokens.
Accredited investors can buy shares of the fund directly and then sell them after a six-month lockup on a secondary market under the ticker GBTC.
The GBTC fund became popular among investors because it was the only public market vehicle available for trading BTC and was considered the next best thing to a Bitcoin Exchange-Traded Fund (ETF), especially since US regulators are unlikely to approve such a product despite multiple applications.
Due to the lack of alternatives, GBTC shares are often traded at a premium to the value of bitcoin on spot markets. However, the tables have turned in recent months and GBTC shares have started trading at a significant discount, prompting Grayscale, Bitcoin’s largest buyer, to stop buying more BTC.
Institutional Demand Plunging
One of the biggest misconceptions in crypto is that institutional investors are interested in purchasing Bitcoin. These are totally false rumors spread by moon boys and Bitcoin maxi’s in an attempt to create hype.
Just last week, we saw Bitcoin bulls expressing their euphoria and hype over a false rumor that claimed “Apple would be purchasing billions in Bitcoin”
We’ve seen these fake rumors started with Facebook, Google, Amazon, and dozens of top companies. They even claimed Paraguay and Mexico accepted Bitcoin as legal tender to advanced a false narrative that Latin America is slowly moving to adopt Bitcoin. These rumors are aimed at 1 thing, to create an illusion of value, and lure in inexperienced retail to later dump on.
In the chart below, we can see Grayscale hasn’t increased its Bitcoin holdings in several months, which suggests little to no new institutional demand.
When GBTC unlocks, the bearish price action will force companies already holding, to sell (likely at a net loss), which will require Grayscale to dump more of its Bitcoin holdings and result in an extended Bitcoin correction.
The chances of Grayscale’s holdings increasing again are very low as there are no real signs of demand returning anytime soon. My guess is the holdings will tank substantially in the coming months as more institutions jump from the sinking ship.
In a recent Twitter post, I explained how Bitcoin whales who hold 1000+ BTC have been dumping for many months now. Data shows there are fewer BTC whales now than there were in October 2019.
In this article from April 2021, I warned my followers that Institutions were slowly losing confidence in Bitcoin and that the price would likely crash. Bitcoin has lost over half of its value since. Despite it being called “FUD” by many Bitcoin maximalists, it’s aged perfectly.
No Incentives for Institutions to Invest
One main reason why this will likely be a bearish event is that the incentive to reinvest is very low. The so-called Grayscale carry trade has lost its shine ever since GBTC began trading at a discount in February.
As of Sunday, the shares traded at a discount of 14.17% to the net asset value, according to data source Skew.
Previous GBTC unlocks, and their impacts
In February 2021, GBTC shares representing 20,000 Bitcoin (worth nearly $700 million) were unlocked. After GBTC’s last unlock, it took a few months to crash BTC, which could potentially be the case again. Only time will tell.
The last GBTC unlock potentially helped contribute to the fastest and largest sell-off in Bitcoin’s entire history.
Let’s not forget that this next GBTC unlock is substantially larger.
Could this be Bullish?
As with all my articles, I aim to be totally objective and share both sides. Having a bias when investing can sometimes be disastrous. Below I’ll share some of the counterarguments from those who think it could actually be a bullish event.
A few crypto platforms and influencers have claimed the GBTC unlock will actually have a positive impact on the markets. Kraken Exchange recently put out a report stating that “market structure suggests that the unlock will not weigh materially on BTC spot markets anytime soon, if at all, like some have claimed.”
Pete Huminston, the manager at Kraken Intelligence
“Despite once being a single-asset fund of the other, BTC and GBTC are two distinct assets with different forces influencing their respective prices.”
He went on to state that “the trading strategies commonly used by institutional investors leads us to conclude that the event could be mildly positive for the Bitcoin price.”
William Quigley, co-founder of Tether
The co-founder of one of the largest frauds in the world said some institutions that bought GBTC six months ago may not sell immediately when due because they are now at a loss.
“Some will definitely delay sales to avoid damage.”
Quigley claimed that Grayscale’s decline in net asset value (NAV) could indicate lower corporate demand for the once highly sought-after product. He said this is not an indication that institutional interest in Bitcoin has waned, but rather a sign that institutions are acquiring Bitcoin.
Those claims are obviously not true, as all market data suggests whales and institutions have been dumping since February.
Sam Bankman-Fried, FTX CEO
The CEO of FTX has opined that a tranche of Grayscale Bitcoin Trust (GBTC) shares being sold on the secondary market “doesn’t really matter” for Bitcoin.
As with all future events, nobody knows exactly what the outcome is with utmost certainty. But doing research, and understanding what it means can be very beneficial in preparing for what comes next.
We’ve been moving sideways for the past several weeks, but with the GBTC unlock, this may change. It’s important to be prepared for volatility.
I hope you enjoyed reading this! Stay safe, and have a great day.
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