REUTERS / Lucas Jackson
- The approval of a bitcoin-traded fund in the United States could pull investors out of popular trade and erode fundamental support for the cryptocurrency’s high price, JPMorgan strategists said on Friday.
- Institutional investors invest heavily in the Grayscale Bitcoin Trust for regulatory reasons, rather than buying bitcoin directly. But the trust announces a premium for the underlying token.
- The Securities and Exchange Commission is expected to authorize a bitcoin ETF in 2021. The introduction of such a fund could take institutional investors out of grayscale confidence and reduce the premium.
- While gray-scale fund outflows may represent short-term pressure on bitcoin prices, JPMorgan still expects bitcoin ETFs to benefit cryptocurrency in the long run.
- Watch the bitcoin trade live here.
The introduction of a bitcoin-traded fund in the U.S. is expected to pull investors out of a popular call option and create a short-term hitch in the token price, JPMorgan said on Friday.
The Securities and Exchange Commission is expected to approve this ETF this year, as the Biden administration brings new leadership to the agency. Regulatory authorization would strengthen the case of bitcoin investment in the long run. However, more immediately, the approval would likely deplete the capital of the Grayscale Bitcoin Trust investor, according to JPMorgan.
While retail investors typically buy bitcoin directly, institutional investors largely purchase stakes in the Grayscale trust for regulatory reasons, according to strategists. The fund effectively holds a monopoly on institutional capital that flows into bitcoin and therefore holds a grand prize for the cryptocurrency it tracks.
An ETF bitcoin would offer an alternative to the grayscale fund and reduce the premiums paid for the funds, the team said.
Read More: The CIO of a $ 500 million crypto asset manager looks at 5 ways to evaluate bitcoin and decide if you own it after the digital asset breached $ 40,000 for the first time
“A cascade of GBTC outflows and a collapse of its premium would likely have negative short-term implications for bitcoin, given the flow and important signaling from GBTC,” the bank said in a note to customers.
Bitcoin cooled down to start the week after rising to almost $ 42,000 on Friday. The cryptocurrency plunged up to 19%, to $ 30,775.26, on Monday, with investors securing profits from its week-high. Bitcoin is still about 90% higher last month.
JPMorgan not only estimated how much an ETF could launch a bitcoin, but the purchase structures used by institutional investors provide some hints. A typical trade to monetize the grayscale fund’s premium involves borrowing bitcoin, placing the tokens in the fund and receiving shares with a six-month blocking period. Investors then protect the stake by selling GBTC shares.
Read More: BANK OF AMERICA: Buy these 10 Dow shares to take advantage of the rich dividends and a long-term strategy prepared for a return in 2021
Some institutional investors probably entered the monetization market during the second half of 2020 with the intention of selling after the blocking period, said JPMorgan. Strategists estimated that about 15% of GBTC shares were being used for monetization trading. After the six-month block expires, a significant portion of the fund’s investors can rush to the exits to pocket the premium.
An ETF bitcoin would only intensify the exodus, the bank added. This fund would erode the gray scale monopoly status and could lead more investors to abandon the trust.
Bitcoin traded at $ 33,625.67 starting at 8:48 am Eastern Time on Monday.
Now read more market coverage on Markets Insider and Business Insider:
‘This looks a lot like 1999’: a former Wall Street strategist explains why he is approaching markets with a ‘tactically optimistic’ strategy – and 3 advice on how to play in a defined market for a fix
3 reasons why bitcoin doubled in less than a month – and why experts think it will not repeat the fall of 2017
US payroll records a surprising drop of 140,000 in December, the first drop since April, as labor market difficulties in the United States continue
Markets Insider