Grayscale’s Bitcoin ETF sees $1.1 billion outflow amid narrowing discount

In a significant turn of events in the cryptocurrency market, approximately $1.1 billion has flowed out of Grayscale’s Bitcoin exchange-traded fund (ETF) in just three days. This sudden outflow comes as investors rushed to exit the fund, primarily driven by the narrowing discount on the Grayscale Bitcoin Trust (GBTC). 

The discount reached its lowest level in nearly three years, prompting traders to seek alternatives.

Large outflow on January 16

A substantial portion of the outflows, estimated at $594 million, occurred on the third day of trading on January 16. This data comes from Bloomberg ETF analyst James Seyffart, who shared the information via a tweet. 

Seyffart also noted that while some recently launched Bitcoin ETFs experienced inflows, it remains uncertain whether these inflows offset the significant outflow from GBTC.

Analysts have highlighted the potential for discrepancies in calculating these flows due to the complex accounting and settlement processes typically associated with trading shares. This complexity can make it challenging to measure the net impact of inflows and outflows precisely.

The rise and fall of GBTC

For several years, GBTC provided an attractive opportunity for investors who borrowed funds to enter the fund and capitalize on the Grayscale premium. At its peak in July 2019, this premium reached as high as 43%, according to YCharts data. 

However, this lucrative arbitrage trade began to unravel when the premium unexpectedly turned into a discount in February 2021. Compounded by a minimum six-month lock-up period for GBTC shares, many investors were trapped in the fund as the discount continued to widen.

Following GBTC’s conversion into a spot ETF, the discount gradually narrowed, reaching as low as 1.55%. Investors who had their funds locked up for extended periods seized the opportunity to exit as the discount diminished.

The estimated outflow of $1.1 billion from GBTC translates to approximately 27,000 Bitcoin, considering the current Bitcoin price of around $42,800.

Bitcoin holdings across ETF issuers

Excluding GBTC, the nine other spot Bitcoin ETF issuers collectively hold 35,761 Bitcoin, according to data from CC15Capital. Grayscale remains the dominant holder with 605,891 Bitcoin. BlackRock and Fidelity’s ETFs hold 11,439 and 9,750 BTC, respectively.

Please note that the actual Bitcoin holdings of each ETF issuer may not be entirely up to date.

ARK Invest’s shift in Bitcoin holdings

Meanwhile, ARK Invest, led by Cathie Wood, has adjusted its holdings in response to the evolving cryptocurrency market. ARK Invest has begun accumulating its recently approved ARK 21Shares Bitcoin ETF (ARKB) while divesting Proshares Bitcoin Strategy ETF (BITO) shares and other tech-focused holdings in its ARK Next Generation Internet ETF.

ARKB currently holds 2,535 Bitcoin, valued at over $109 million. This is the fifth-largest Bitcoin holding among the ten-spot Bitcoin ETF issuers.