REUTERS / Lucas Jackson
- The approval of a bitcoin ETF in the US could pull investors out of a popular trade and erode significant support for the high price of the cryptocurrency, JPMorgan strategists said on Friday.
- Institutional investors invest largely in the Grayscale Bitcoin Trust for regulatory reasons instead of buying bitcoin directly. Yet the trust trusts a premium on the underlying sign.
- The Securities and Exchange Commission is expected to authorize a bitcoin ETF in 2021. The launch of such a fund could drive institutional investors out of Grayscale’s confidence and lower the premium.
- While outflows from the Grayscale trust may provide short-term pressure for bitcoin prices, JPMorgan still expects bitcoin ETFs to benefit the cryptocurrency in the long run.
- Watch bitcoin trading live here.
JPMorgan said on Friday that the launch of an exchange-traded fund in the United States is likely to pull investors out of a popular call option and reduce the price of the grant in the short term.
The Securities and Exchange Commission is expected to approve such an ETF this year, as the Biden administration brings new leadership to the agency. Regulatory authorization will strengthen the long-term investment case of bitcoin. But more immediately, according to JPMorgan, the approval is likely to lower Grayscale Bitcoin Trust’s investor capital.
While retail investors typically buy bitcoin directly, according to Legal Street, institutional investors largely buy interests in Grayscale’s trust. The fund has an effective monopoly on institutional capital flowing in bitcoin, and therefore boasts a large premium on the cryptocurrency it follows.
A Bitcoin ETF provides an alternative to the Grayscale trust and cuts the premiums currently paid by funds, the team said.
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“A fall in GBTC outflow and a collapse in its premium are likely to have negative consequences for bitcoin in the short term, as GBTC’s flow and signal are important,” the bank said in a note to customers.
Bitcoin cooled to start the week after rising to nearly $ 42,000 on Friday. The cryptocurrency tumbled as much as 19% to $ 30,775.26 on Monday as investors secured profits from its week-long rally. Bitcoin has been up about 90% higher in the past month.
JPMorgan has not estimated how much an ETF bitcoin can strike, but the buying structures used by institutional investors provide some tips. A typical transaction to earn money from the Grayscale Trust premium involves borrowing bitcoin, placing the tokens in the trust and receiving shares with a period of six months. Investors then hedge the interest by shorting GBTC shares.
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Some institutional investors were likely to enter monetary trading during the second half of 2020 with the aim of selling after the closing period expired, JPMorgan said. The strategists estimate that about 15% of GBTC shares are currently used for monetization. Once the six-month lock-in expires, a significant portion of the trust’s investors can rush to the exits to pocket the premium.
A Bitcoin ETF will only intensify the exodus, the bank added. Such a fund undermines Grayscale’s monopolistic status and could lead to more investors leaving the trust.
Bitcoin traded at $ 33,625.67 at 8:48 a.m. Monday.
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