- JPMorgan Chase strategists said on Friday that the approval of Bitcoin exchange-traded funds (ETFs) in the United States may cause investors to exit popular trading and weaken the key support for high cryptocurrency prices.
- Institutional investors mainly invest in Grayscale Bitcoin Trust for regulatory reasons, rather than directly buying Bitcoin. However, the trust touted the premium for the underlying token.
- The Securities and Exchange Commission (Securities and Exchange Commission) is expected to approve Bitcoin ETFs in 2021
- Although the outflow of Grayscale trust funds may put pressure on bitcoin prices in the near term, JPMorgan Chase still hopes that bitcoin ETFs will benefit cryptocurrencies in the long run.
- Watch the Bitcoin transaction live broadcast here.
JPMorgan said on Friday that the introduction of Bitcoin exchange-traded funds (ETFs) in the United States may cause investors to withdraw from popular buying options and drag down the price of the token in the short term.
With the Biden administration bringing new leadership to the agency, the US Securities and Exchange Commission is expected to approve this ETF this year. In the long run, regulatory authorization will strengthen the Bitcoin investment case. JPMorgan said, but more directly, the approval may weaken the investor funds of the Grayscale Bitcoin Trust Fund.
According to strategists, although retail investors usually buy Bitcoin directly, institutional investors have largely bought shares of Grayscale Trust for regulatory reasons. The fund actually controls the monopoly of institutional capital flowing into Bitcoin and therefore has a significant premium over the cryptocurrency it tracks.
The team said that the Bitcoin ETF will provide an alternative to Grayscale Trust and reduce the premium paid by funds.
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The bank said in a report to customers: “Given the importance of GBTC traffic and signals, the massive outflow of GBTC and the collapse of premiums may have a negative near-term impact on Bitcoin.”
Bitcoin started a week of cooling after it surged to nearly $42,000 on Friday. As investors profited from the weeks-long rally, the cryptocurrency plunged 19% on Monday to $30,775.26. In the past month, the price of Bitcoin is still about 90% higher.
JPMorgan Chase does not estimate how much ETFs can slam Bitcoin, but the buying structure used by institutional investors provides some hints. Typical transactions for monetizing Grayscale trust premiums include borrowing bitcoin, placing tokens in the trust, and acquiring shares with a six-month lock-up period. Then, investors hedge their shares by shorting GBTC stock.
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JPMorgan Chase stated that some institutional investors may enter monetization transactions in the second half of 2020 and intend to sell stocks after the lock-up period. Strategists estimate that approximately 15% of GBTC shares are used for currency transactions. Once the six-month lock-up period expires, a large part of the trust’s investors may scramble to exit in order to earn a premium.
The bank added that Bitcoin ETFs will only exacerbate the flight. Such funds will weaken Gray’s monopoly position and may prompt more investors to abandon trusts.
As of 8:48 am EDT on Monday, Bitcoin was trading at $33,625.67.
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