- The approval of a bitcoin ETF in the United States could pull investors out of popular trading and undermine key support for the high price of the cryptocurrency, JPMorgan strategists said on Friday.
- Institutional investors largely invest in the Grayscale bitcoin trust for regulatory reasons, rather than buying bitcoin directly. Yet trust gives a premium for the main sign.
- The Securities and Exchange Commission is expected to authorize the Bitcoin ETF in 2021
- While outflows from Grayscale’s confidence may represent short-term pressure on bitcoin prices, JPMorgan still expects the bitcoin ETF to take advantage of the cryptocurrency in the long run.
- Watch the bitcoin trade live here.
The introduction of an exchange-traded bitcoin fund in the United States is likely to pull investors out of a popular buying option and create a short-term delay in the price of the token, JPMorgan said on Friday.
The Securities and Exchange Commission is expected to approve such an ETF this year as the Biden administration introduces new management to the agency. The regulatory authorization would strengthen the investment case of bitcoin in the long run. But more immediate approval is likely to draw investment capital from the Grayscale Bitcoin Trust, according to JPMorgan.
While retail investors typically buy bitcoins directly, institutional investors largely buy stakes in Grayscale’s trust for regulatory reasons, according to strategists. The fund has an effective monopoly on institutional capital that flows into bitcoin, and therefore boasts a large premium for the cryptocurrency it tracks.
The Bitcoin ETF will offer an alternative to trust in Grayscale and reduce the premiums currently paid by the funds, the team said.
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“A cascade of GBTC leaks and a collapse in its premium is likely to have negative short-term consequences for bitcoins, given the flow and signaling important to GBTC,” the bank said in a note to customers.
Bitcoin cooled to start the week after jumping to nearly $ 42,000 on Friday. The cryptocurrency fell 19 percent to $ 30,775.26 on Monday as investors secured gains from its weekly rally. Bitcoin is still about 90% higher in the last month.
JPMorgan has not estimated how much an ETF can hit bitcoin, but the buying structures used by institutional investors give some hints. A typical Grayscale trust monetization deal involves borrowing bitcoin, placing tokens in the trust, and receiving shares with a six-month blocking period. Investors then hedged the shares, cutting GBTC shares.
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Some institutional investors may have entered earnings trading in the second half of 2020 with the intention of selling after the blockade period, JPMorgan said. Strategists estimate that currently about 15% of GBTC shares are used for trading. After the expiration of the six-month blockade, a significant part of the trust’s investors can rush to the exits to take the premium.
An bitcoin ETF would only boost output, the bank added. Such a fund undermines Grayscale’s monopoly status and could cause more investors to lose confidence.
Bitcoin was trading at $ 33,625.67 at 8:48 a.m. ET on Monday.
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