FTX’s $1 Billion Grayscale ETF Sell-Off Spurs Outflow, Impacts Bitcoin Price Dynamics
In Brief
FTX reportedly sold over 22 million ($1 billion worth) shares of Grayscale Bitcoin Trust following its conversion into an ETF.
Investors sold over $2 billion from the Grayscale Bitcoin Trust (GBTC) following its conversion into an exchange-traded fund (ETF) earlier this month. A substantial amount of this withdrawal is now being attributed to former crypto exchange and hedge fund bankrupt company FTX, which reportedly sold 22 million shares.
Over the weeks following the Grayscale Bitcoin Trust conversion to an ETF after the US Securities and Exchange Commission (SEC) approved it among eleven spot Bitcoin ETFs, the fund witnessed the withdrawal of billions of dollars’ worth of Bitcoin. FTX played a significant role in this trend as the bankrupt company sold 22 million shares, resulting in FTX’s complete divestment from GBTC, amounted to nearly $1 billion.
Subsequently, Bitcoin’s (BTC) value has experienced a decline resulting in its decrease to $39,552 as of the time of writing, compared to nearly 47,000 the day after the ETFs approval.
However, with FTX selling the substantial part of their holdings, the selling pressure may ease considering that the liquidation of holdings by a bankruptcy estate is a relatively uncommon event.
FTX’s Strategic Moves with the GBTC
Similar to many large crypto trading entities, FTX took advantage of the price difference between Grayscale Bitcoin Trust shares and the net asset value of the underlying Bitcoin in the fund.
In autumn 2023, FTX possessed 22.3 million GBTC, valued at $597 million. The value of FTX’s GBTC holding increased to approximately $900 million on the initial day of Grayscale’s bitcoin ETF trading on January 11, when it concluded the trading session at $40.69.
Additionally, FTX maintained ownership of shares in five Grayscale trusts and possessed nearly 3 million shares in a statutory trust managed by ETF provider Bitwise. These assets were held in a brokerage account at ED&F Man Capital Markets, now recognized as Marex Capital Markets.
The timing of FTX’s sale of 22 million shares coincided with an announcement from Alameda Research, a trading firm associated with FTX, voluntarily dismissing a lawsuit following the GBTC conversion of its flagship trust product into an exchange-traded fund (ETF).
The lawsuit claimed that over $9 billion in investor funds became trapped in GBTC after the collapse of FTX. It was part of broader efforts to recover and maximize returns for FTX customers who had lost funds due to the failed crypto exchange and its affiliated platforms. Additionally, the lawsuit alleged that Grayscale had charged excessively high fees.
The case against defendants in the original suit, including Grayscale Chief Executive Officer Michael Sonnenshein, Grayscale parent company Digital Currency Group (DCG), and DCG Chief Executive Officer Barry Silbert, was also dropped.
FTX is still confronting 36,075 claims from customers amounting to a total of $16 billion. Additionally, the crypto exchange has debts of approximately $3.1 billion owed to its top 50 corporate creditors.
GBTC’s Transition to ETF Sparks $3.8 Billion Outflows
Earlier this month, the world’s largest bitcoin investment pool GBTC, successfully transitioned into an exchange-traded fund (ETF) following a groundbreaking approval from the Securities Exchange Commission (SEC).
Previously, Grayscale fund had already existed for a decade structured as a closed-end fund and had accumulated close to $30 billion of assets.
During its trust status, GBTC holders faced challenges in exiting positions seamlessly. Subsequent to its conversion into an ETF, approximately $3.8 billion exited GBTC by this week, which allegedly influenced the decline in Bitcoin price.
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About The Author
Alisa, a dedicated journalist at the MPost, specializes in cryptocurrency, zero-knowledge proofs, investments, and the expansive realm of Web3. With a keen eye for emerging trends and technologies, she delivers comprehensive coverage to inform and engage readers in the ever-evolving landscape of digital finance.
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Alisa, a dedicated journalist at the MPost, specializes in cryptocurrency, zero-knowledge proofs, investments, and the expansive realm of Web3. With a keen eye for emerging trends and technologies, she delivers comprehensive coverage to inform and engage readers in the ever-evolving landscape of digital finance.
