The approval of Bitcoin ETFs was followed by a brief period of euphoria. But then the Bitcoin price collapsed massively. One reason was certainly that “the ETF” was already priced in. But that’s only half the explanation.
Maybe you could call it karma. The Bitcoin community wanted Wall Street – and they got Wall Street.
There was great celebration last week when the US Securities and Exchange Commission (SEC) approved a number of Bitcoin ETFs. The ETF was considered a breakthrough to traditional finance. The floodgate was open and the capital flooding in was supposed to shoot the price to the moon.
Things looked good for a short time. The price rose to up to 44,500 euros. But then he collapsed brutally. It fell below 38,700 in just over 24 hours. Since then it has meandered sideways somewhat indecisively.
So was the launch of the Bitcoin ETF a flop? Have those who want to have Bitcoin in their portfolio already invested? Was the expected savior a failure because it was put on the market bypassing the market?
One of the most successful ETF launches of all time
The approval of the ETFs was certainly not a flop. On the first day of trading alone they turned over 4.6 billion dollars, after two days 7.6 billion dollars, and the volume remains high. Hardly any ETF has ever started as successfully as “the” Bitcoin ETF.
The second strongest Bitcoin ETF is iBIT from Blackrock, the world’s largest asset manager. After just two days of trading, it is covered by 11,500 Bitcoins that Blackrock may have purchased directly. This corresponds to almost half a month of mining. Investors are buying Bitcoins much faster than miners are producing them.
The fact that other asset managers are less optimistic clouds the picture somewhat. For example, Vanguard, the second largest asset manager in the USA, has blocked the purchase of Bitcoin ETFs on its platform: They consider the investment thesis for cryptocurrencies to be weak, said a spokesman, and the high volatility to be counterproductive to “real long-term returns achieve.”
But this skepticism does not reduce the success of ETFs. The demand is high. Then why does the price fall instead of rise?
Because anticipation is the most beautiful joy
The obvious answer is the “Buy the rumor, sell the news” thesis.
This common phrase refers to the strategy used by stock market traders to bet on a value when there are rumors of impending big news and then sell when that news arrives.
The idea is that rumors have a greater impact on the market than hard facts, at least in the short term. Since December, there have been increasing rumors that ETFs are about to be approved, as a result of which the price rose from less than 35,000 euros to more than 42,000 euros, i.e. by a good 20 percent.
The ETF, you could say, was already priced in. The traders who had bought on the rumor now closed their positions. This triggered waves of selling that reinforced themselves, whereupon the price sank to a lower level. The ETF was priced in, now the anticipation for it has been priced out.
This explanation certainly plays a role. But it probably doesn’t explain everything. Because there is another “hard” factor that many people don’t have on their radar.
The grayscale effect
To understand a key dynamic of the ETF launch, you have to take a closer look at the strongest ETF: Grayscale’s GBTC.
The GBTC ETF provides by far the highest trading volume. On the first day of trading, he accounted for almost half of the $4.6 billion.
However, it differs from the other ETFs in one important respect. While the securities that Blackrock, Fidelity and others sell are new to the market, the GBTC shares are a kind of recycled product: Grayscale has long created the Bitcoin Trust, a vehicle that allows professional investors to rely on traditional Way to invest in Bitcoin.
The Grayscale fund had some tricky features: the shares were backed by real Bitcoins, more than 600,000 in total. But it was not possible to exchange them for Bitcoin or dollars. They could only be sold on the secondary market. This led to the price of GBTC decoupling from Bitcoin and falling by around 40 percent at times.
With the approval of the ETFs, the SEC also allowed Grayscale to convert the fund into an ETF. This made it possible to trade the shares on the primary market, i.e. to sell them not just to accredited investors, but to anyone who has a securities account.
So if GBTC shares traded for almost $2.3 billion on the first day of ETF approval, this does not mean that an asset manager has created new securities based on (newly purchased) Bitcoins. Instead, shares that have been around for a long time have changed hands.
This should be a relief for many investors in the GBTC funds. They were finally able to sell their shares without having to accept a huge discount; For some who bought GBTC shares at a discount, this became an opportunity to realize a profit.
The approval of ETFs actually opens a floodgate – but not in the direction hoped for. ETF shares amounting to 600,000 Bitcoin flow onto the primary market, often in a constellation that makes trading profitable even well below the market value.
This “Grayscale effect” is more “real” than the influence of “Sell the news” because it relies more heavily on real economic mechanisms. It could continue to dominate the ETF scene for a while, but is likely to wear off over the course of a few months.