Bitcoin’s value has dropped by 15 percent in the last two weeks as investors have taken advantage of the launch of the bitcoin exchange traded fund earlier this month. They are taking profits and selling their volatile cryptocurrency.
The price of Bitcoin fell as much as three per cent on Monday, dropping below $39,000 for a first time since December early, before recovering slightly during afternoon trading.
Recent losses have unraveled a part of the huge rally that occurred late last year. This was fueled by fervent speculations that mainstream stock funds would track the world’s most popular crypto token, attracting new investors.
The flow of money into ETFs, many launched by major Wall Street players like BlackRock, has been disappointing. Investors who purchased them have suffered heavy losses.
According to CoinShares, the crypto investment group, the 10 new funds that were launched on 11th January, after being approved by the US Securities and Exchange Commission (SEC), had collected $4.7bn collectively by Tuesday’s end. Bitcoin was trading at $46,100 the day after the ETFs launched. However, it has steadily fallen since then.
Grayscale’s fund has lost $3.4bn since it was converted into an ETF along with the new launches.
Analysts think much of the money in the 10 new funds is likely to have come from investors exiting Grayscale, which charges much higher fees than its competitors.
Douglas Comin is a senior crypto option trader at XBTO. He said, “What people did not realise was that you would have a huge exit from Grayscale.” If you look closely, most of the inflows were not new money. They were investors who moved from Grayscale ETF to another ETF.
He added, “These ETFs had been highly anticipated and we now see that [a bull run in bitcoin] will not materialise as quickly as market expected.”
Grayscale’s 10-year old bitcoin trust was converted, allowing some investors to completely exit their investments. For years they had only been able sell shares at a significant discount to bitcoin. The fund’s total size fell from $28bn at the beginning of this month to just $22bn as of Monday.
Varun Paul is the director of Fireblocks’ market infrastructure. He said that ETFs provide liquidity and allow people to enter, but also exit. Some investors are selling positions they bought a long time back, and so are in the money.
Grayscale has reduced its management fee from 2 to 1.5 percent as it prepares to launch its ETF. However, this rate is still significantly higher than that of its competitors.
BlackRock, on the other hand, charges only 0.12 percent. This figure will increase to 0.25 percent in the following year, if $5bn of assets are managed by its ETF. The US group has raked in $1.7bn so far.