- The Grayscale Bitcoin Trust (GBTC), which had been experiencing outflows for 78 straight days, has seen a sudden reversal with investors buying back into the fund.
- Despite its high fee of 1.5%, the highest among its Bitcoin ETF competitors, GBTC has managed to attract investors due to its potential use for short selling.
- Market analysts suggest that the inflow could also be due to prime brokerages increasing their supply for short sellers, or it could indicate a bullish inflow.
After a prolonged period of outflows, the Grayscale Bitcoin Trust (GBTC) has seen a sudden influx of investors, despite its high fees. The reasons behind this unexpected development are explored in this article.
GBTC Experiences Unexpected Inflows
After 78 consecutive days of outflows, amounting to over $17 billion in Bitcoin, the Grayscale Bitcoin Trust (GBTC) has seen a sudden reversal. Investors have started buying back into the fund, adding $67 million worth of Bitcoin to its assets under management over two days. This development has left market observers puzzled, as GBTC’s high fee of 1.5% should theoretically deter investors.
Potential Use for Short Selling
One possible explanation for the inflow is GBTC’s potential use for short selling. ETF.com senior analyst Sumit Roy suggests that while the high fees might deter long-term investors, they may not be a deterrent for short sellers. Short sellers can profit from borrowing GBTC shares, selling them at the current market price, and then buying them back at a lower price. This strategy, however, relies on the availability of GBTC shares to borrow, which could be a potential source for the recent inflows.
Other Possible Reasons for the Inflow
Another possible reason for the inflow could be prime brokerages increasing their supply for short sellers. Keegan Toci, chief investment officer at Combine Capital, suggested on Twitter that a large prime brokerage had told him GBTC shares are still very easy to borrow. This could indicate that the buying may not be solely due to short selling, but could also be a bullish inflow.
Conclusion
The sudden inflow into the Grayscale Bitcoin Trust, despite its high fees, has left market observers puzzled. While the potential use for short selling could be one explanation, the ease of borrowing GBTC shares suggests that other factors may also be at play. As the crypto market continues to evolve, it will be interesting to see how these dynamics play out.
