Business News Report
January 23, 2024

FTX’s $1 Billion Grayscale ETF Sell-Off Spurs Outflow, Impacts Bitcoin Price Dynamics

FTX's $1 Billion GBTC Sell-Off Explains Outflow, Impacts Bitcoin Price

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.

Disclaimer

In line with the Trust Project guidelines, please note that the information provided on this page is not intended to be and should not be interpreted as legal, tax, investment, financial, or any other form of advice. It is important to only invest what you can afford to lose and to seek independent financial advice if you have any doubts. For further information, we suggest referring to the terms and conditions as well as the help and support pages provided by the issuer or advertiser. MetaversePost is committed to accurate, unbiased reporting, but market conditions are subject to change without notice.

About The Author

Alisa is a reporter for the Metaverse Post. She focuses on investments, AI, metaverse, and everything related to Web3. Alisa has a degree in Business of Art and expertise in Art & Tech. She has developed her passion for journalism through writing for VCs, notable crypto projects, and scientific writing. You can contact her at [email protected]

More articles
Alisa Davidson
Alisa Davidson

Alisa is a reporter for the Metaverse Post. She focuses on investments, AI, metaverse, and everything related to Web3. Alisa has a degree in Business of Art and expertise in Art & Tech. She has developed her passion for journalism through writing for VCs, notable crypto projects, and scientific writing. You can contact her at [email protected]

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