TL; DR
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A number of investors are selling the Grayscale BTC ETF, putting downward pressure on the price of BTC, causing a broader market sell-off.
Full story
ICYMI: Bitcoin plummeted and took the rest of the market with it.
What the hell happened?
In a word? Grayscale.
Grayscale’s spot Bitcoin ETF was originally a ‘trust’, which meant they:
Bought a whole bunch of Bitcoin (one time) → locked it up in a ‘trust’ → then sold shares of that trust.
The big difference between trusts and ETFs is:
When you sell buy/sell shares in a Bitcoin trust, the BTC that each share represents is not actually bought/sold. With Bitcoin ETFs it is.
Long story longer: Bitcoin ETFs actively influence the price of BTC, while trusts do not.
“Okay, but how did this lead to a price drop?”
Well, in recent years, the BTC trust has never had as much demand as Bitcoin itself. So if people wanted to sell their shares in the trust, they had to offer them at a lower price than they were worth to attract buyers.
There was literally a 50% discount at one point where you could buy Bitcoin at half the market price if you bought it through the Grayscale BTC trust.
(And that’s exactly what people did!)
Unfortunately, that discount ended once Grayscale converted its trust into an ETF – and furthermore – when the conversion occurred, Grayscale did not reduce its fees to compete with other Bitcoin ETFs…
So you have:
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A bunch of people who made a ridiculous amount of money (on paper) by buying Bitcoin at 50% off through the trust.
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Grayscale refuses to reduce its fees.
What do you get as a result?
A group of investors who are happy to sell out and avoid price increases. The only problem for the rest of the market is…
Unlike a trust, when people sell their Grayscale spot Bitcoin ETF shares, Grayscale must also sell the underlying Bitcoin.
And in recent days we’ve seen Grayscale sell billions on behalf of its customers, inspiring the rest of the market to sell in anticipation of lower prices.
Okay, now you know!
