Why Bitcoin ETF Investors Are Suddenly Buying Back Into Grayscale – Decrypt

of grayscale Bitcoin Trust has been bleeding for 78 consecutive days, with more than $17 billion in Bitcoin lost as investors withdrew their cash. Then, suddenly and seemingly inexplicably, the bleeding stopped, and investors began buying back the fund earlier this week. why?

Since it was converted to Bitcoin ETF In January, the Grayscale Bitcoin Trust saw only two days of net inflows: Friday, May 3rd and Monday, May 6th. Over the past two days, $67 million worth of funds have been added. Bitcoin The fund remains the leader with more than $18 billion in assets under management.

The move surprised market watchers, but it didn’t last long.

According to the data, on Tuesday, May 7, GBTC flows returned to the red as $29 million worth of shares were redeemed. coin glass. Still, this green blip was enough to make Bitcoin ETF observers wonder, “Why would investors buy his GBTC?”

After all, GBTC’s 1.5% fee is the highest among its Spot Bitcoin ETF competitors and should mean it is the worst performer in the group. But that’s not the only metric to evaluate a fund, said Sumit Roy, senior analyst at ETF.com. Decryption. While high fees may be a deterrent for investors who plan to hold stocks for the long term, the same is not the case for short sellers.

“The idea that GBTC could be used to short Bitcoin is the flip side of it being the least attractive Bitcoin spot ETF to go long, either outright or as one leg of a pair trade. It’s just that,” Roy said.

One method that works is: A short seller borrows assets such as his GBTC shares from a prime brokerage firm. The short seller then sells her GBTC shares at the current market price. If the short seller’s bet against her GBTC is correct, she can buy back the stock at a lower price. The difference between that initial market price and the (hopefully) lower price is your profit. The last step in the whole process is to return the shares to the broker who lent them to you in the first place.

However, this only works if prime brokerages have stocks available for lending, which could be one source of GBTC inflows. Of course, that may not be the only reason people buy stocks.

said Keegan Toshi, chief investment officer at Combine Capital. on Twitter A major prime brokerage told him that GBTC stock remains very borrowable. In other words, there is no shortage of stock for brokerages to increase supply to short sellers.

Roy explained that there is a strategy for ETF issuers that are new to the market and need to deal with new entrants offering lower fees.

BlackRock’s iShares MSCI Emerging Markets ETF was launched in 2003, but after a two-year head start, Vanguard launched the Vanguard Emerging Markets Equity Index Fund ETF in 2005. faced fierce competition.

“BlackRock didn’t want to lower the price of EEM, so they launched a cheaper clone product, IEMG,” Roy said in an email. Decryption. “EEM then experienced consistent outflows of assets over time, but it was not a linear decline. There was a lot of inflows along the way, and the ETFs experienced a decline in liquidity and the fund’s active activity. It remained a popular trading vehicle for those who prioritized the options market.”

Sound familiar? If so, it’s because Grayscale has applied for registration. Grayscale Bitcoin Mini TrustThis takes a page out of BlackRock’s strategy as the Wall Street giant looks to take the top spot in the spot Bitcoin ETF category.