“I Thought the Bitcoin ETF Was Meant To INCREASE Prices, Not Tank Them!?”
TL;DR
A bunch of investors are selling out of the Grayscale BTC ETF, which created downward pressure on BTC’s price, which caused a wider market sell-off.
Full Story
ICYMI: Bitcoin tanked and took the rest of the market with it.
So, what the hell happened?
In a word? Grayscale.
Grayscale’s spot Bitcoin ETF was originally a ‘trust,’ which meant that they:
Bought a whole bunch of Bitcoin (one time only) → locked it in a ‘trust’ → then sold shares of said trust.
The big difference between trusts and ETFs is:
When you sell buy/sell shares in a Bitcoin trust, the BTC that each share represents isn’t actually being bought/sold. With Bitcoin ETFs, it is.
Long story longer: Bitcoin ETFs actively effect the price of BTC, while trusts do not.
“Ok, but how did this cause a price collapse?”
Well, over the past few years, the BTC trust never quite had as much demand as Bitcoin itself. So if folks wanted to sell their shares in the trust, they had to offer them at a lower price than what they were worth, in order to entice buyers.
There was literally a 50% discount at one point, where you could buy Bitcoin at half-off the market price, if you bought it via the Grayscale BTC trust.
(And that’s exactly what people did!)
Unfortunately, that discount ended once Grayscale converted its trust into an ETF - and on top of that - when the conversion happened, Grayscale didn’t lower its fees to compete with other Bitcoin ETFs…
So you have:
A bunch of people who have made a silly amount of money (on paper), by buying Bitcoin at 50% off, via the trust.
Grayscale refusing to lower its fees.
What do you get as a result?
A group of investors that are more than happy to sell out and avoid getting price gouged. Only problem for the rest of the market is…
Unlike a trust, when folks sell their Grayscale spot Bitcoin ETF shares, Grayscale has to sell the underlying Bitcoin as well.
And over the past few days, we’ve seen billions being sold by Grayscale on behalf of its customers - which inspired the rest of the market to sell off in anticipation of lowered prices.
Alright, now you know!