16,200 unlocked, the largest single-day unlocking in grayscale history, how does it affect the Bitcoin market?

Contrary to what many people expected, some analysts believe that this situation will bring a lot of buying pressure for Bitcoin.

Contrary to what many people expected, some analysts believe that this situation will bring a lot of buying pressure for Bitcoin.

Written by: 0xCC

On July 18, Grayscale will usher in the largest single-day unlocking of Bitcoin in history, unlocking approximately 16,240 BTC in one day, which is worth more than US$550 million at current prices. 

 Once unlocked, some investors are worried that there will be huge selling pressure in the market, which will make the already weak market enter the downside again. Nikolaos Panigirtzoglou, a strategist at JPMorgan Chase, gave a bearish expectation, and the analyst also made a prediction that in the medium term, the fair value of Bitcoin is between 23,000 and 35,000 US dollars.

But there are also opposite opinions. Both Arca and Amber believe that this behavior will not cause a lot of selling pressure on BTC. How will this world’s largest cryptocurrency trust use 16,000 bitcoins to disrupt market sentiment?

It’s not uncommon to unlock the 10,000-piece level.

In this July, every participant in the Bitcoin market is paying attention to the unlocking of BTC by the institutional giant Grayscale.

Not long ago, a report by JP Morgan Chase predicted that the price of BTC in July may reach 25,000 US dollars, and the hundreds of millions of US dollars GBTC unlocked by Grayscale unlocking will be an important reason.

This is not the first time the market has encountered such a large amount of GBTC unlocking. Since the end of last year, that is, after the start of this round of bull market, about 10,000 gray-scale GBTC unlocks have occurred several times.


As shown in the figure above, several densely large unlocks occurred in about three relatively concentrated periods of time. Since April of this year, the gray-scale unlocking has entered a small climax until it reached its peak on June 21. The number of 12,000 unlocked in a single day is close to the upcoming 16,200 in July.

It is not difficult to find that out of the five large-amount unlocks marked in the figure, there were two obvious short-term declines in Bitcoin after unlocking, followed by a rebound. On March 24, after 10,300 bitcoins were unlocked, bitcoin fell by a maximum of 4.6% within 72 hours. On June 21, 12,300 bitcoins fell by 5.8% within 72 hours after unlocking.

In the unpredictable crypto market, this fluctuation cannot be called violent. In the recent five large-amount unlocks, three times have not seen a significant decline. The biggest drop after unlocking on June 21st, but this time is superimposed on the bad news that frequently appeared in the supervisory level in June, and it is still difficult to assert that the large unlocking of Grayscale Trust has a greater correlation with the Bitcoin market.

How does GBTC unlock affect the market?

To understand the impact of GBTC on the market, one needs to understand how GBTC works.

Prior to this, there was a long-term gray-scale GBTC arbitrage transaction in the market. Grayscale Trust allows qualified investors to add spot BTC to the trust holdings in exchange for Grayscale Bitcoin Trust shares GBTC. After the 6-month lock-up period ends, investors can sell GBTC in the secondary market. From a historical point of view, before the first negative premium of Grayscale this spring, GBTC had a long-term positive premium over BTC, reaching a maximum of 41% in 2020. Therefore, this strategy will be profitable for a long time.

For hedging arbitrageurs, when performing the above-mentioned arbitrage operations, they also buy bearish BTC futures to hedge risks, thereby establishing a constant position in the value of the US dollar. After the 6-month lock-up period expires, the GBTC is sold in US dollars at a premium in the secondary market and the short position is closed at the same time. The premium becomes the profit of the arbitrageur.

Investors who are bullish on BTC are slightly different. They do not establish a short position when conducting GBTC arbitrage operations, which can simultaneously obtain the profit of BTC rise and gray premium. After the lock-up period is over, if you continue to be bullish, you can sell GBTC and buy spot BTC, which can increase your BTC assets without increasing USD investment.

Both of these two methods of operation may have an impact on the market.

On-chain analyst Willy Woo believes that the GBTC sold by investors will increase the selling pressure of GBTC and reduce the premium, which may transfer part of the purchasing power of BTC spot. “Investors will be more motivated to buy GBTC stocks instead of BTC. Shifted part of the buying pressure in the BTC spot market. It may have a bearish effect on the spot market.”

The change in the premium level is the biggest difference in this unlock

For many reasons, the dollar value of 1,000 GBTC stocks representing the underlying assets of 1BTC was once more expensive than 1BTC for a long time, which is also called gray premium. For several years, Grayscale GBTC has maintained a high premium level, even exceeding 100% at the highest level. Looking back at the data over the past two years, the premium rate hovered around 10% to 30%.

How is the grayscale premium formed? Due to the gray lock-up period and the inability to redeem, the market pays a certain risk premium to investors; this part of the risk premium is due to the warming of market sentiment, and most investors are optimistic about the future market, in order to proactively obtain this part. Risk premiums have bought gray-scale fund shares one after another, further raising the premium of funds in the secondary market. The reason why the gray premium turned negative is the opposite. There is a large number of GBTC shares in the market that seek profit after unlocking, but the purchase funds have not kept up, resulting in a reversal of the GBTC supply and demand relationship.

Since Gray’s suspension of new investment in March this year, the GBTC premium has turned negative. It once fell below -20% in May, and is currently maintained at around -10%. Although the gray-scale unlocking did not cause drastic fluctuations in the market before, there is a big difference between this unlocking and the previous ones. This is the largest single-day unlocking under the background of a negative gray-scale premium.


In the recent past, the gray premium level is gradually converging. Looking back at the historical data in the past two years, it is found that when the premium is positive, there is a certain positive correlation between the gray premium level and the bitcoin price. It is also based on this that gray is called the “weathervane” of the market. As one of the few investment targets of institutional investors, gray premium has long been regarded as an intuitive manifestation of institutional investors’ investment enthusiasm. After the premium turned negative, the “weathervane” of grayscale seems to have lost its previous role.

Previously, several large-amount unlocks conducted at a positive premium did not have a significant impact on the market. Some investors believe that the negative premium reflects the decline of institutional buying enthusiasm. Therefore, in the context of the negative premium, the impact of unlocking may not be the same as the previous few times of unlocking.

More importantly, the negative premium causes a large number of arbitrageurs to make floating losses, which forces them to make a difficult choice: sell GBTC and close short positions, and bear the loss of negative premium-and the closing of these BTC short positions will convert It is the pressure of spot buying; or choose to continue to hold GBTC stocks and short positions, wait until the premium returns to positive before choosing whether to sell-and this means that no selling has occurred. However, no matter which method is adopted, the impact on the spot price may not have the obvious negative effect as expected by the market.

Whether this round of large-amount unlocking will be as calm as before is still difficult to judge.

The impact of grayscale on the market is gradually declining

Although the current gray premium is negative, some analysts believe that this does not represent a decline in the enthusiasm of institutional investors. The launch of Bitcoin ETF may be an important factor in the shift to gray premium. Bitcoin ETF has attracted institutional investors who should have invested in Grayscale Trust, which makes Grayscale’s function as a “weathervane” in the market far less than before. In the past six months, it has not been the grayscale data that predicted the direction of the market (no matter bullish or bearish), but the importance of grayscale in the market has greatly reduced.

Rafael Schultze-Kraft, chief technology officer of on-chain analytics provider Glassnode, once made such a judgment, “The decline in the GTBC premium coincides with the launch of the Purpose Bitcoin ETF, which may attract investment from GBTC.” Chief Executive Officer of Galaxy Digital Official Mike Novogratz also has the same view: “Grayscale was once the best choice for institutional investors, but now Canadian ETFs only charge 40 basis points.” He pointed out that the time when Grayscale Bitcoin turned into a negative premium coincided with that of Canada. The launch time of Purpose Bitcoin ETF coincides.

Schultze-Kraft pointed out that the Bitcoin holdings of the Grayscale Trust Fund have been flat in recent weeks. He said: “This is not surprising, because as long as the existing shares are traded at a discount, there is no point in subscribing for new GBTC shares.”

Canada’s Bitcoin ETF has grown rapidly, and the number of products that can replace Grayscale is gradually increasing in the market. Grayscale is no longer the only option in the market. Some data of Grayscale may not reflect institutional investment views on Bitcoin. It’s just that the agency has chosen other compliant products.

Darius Sit, Chief Information Officer of QCP Capital, gave a similar view. He believes that a large number of institutional investors are using GBTC for arbitrage. “When the premium drops, it is just that trading institutions are cashing in the premium.” And this is not worth the market. Negative sentiment, “There is nothing to worry about, because most ETFs are traded at a price lower than their net asset value. GBTC’s negative premium does not necessarily mean bearishness or capital outflow.”

Long and short disputes, the market is eagerly looking forward to

Even if we consider the impact of gray-scale unlocking, it can only affect the short-term market for less than half a month. As early as February this year, Grayscale announced that it would stop buying new bitcoins. Due to Grayscale’s lock-up period, there will be no new GBTC unlocked after the end of August. Currently, the last unlock of GBTC expires on August 25, and the number is only 58.

QCP Capital pointed out in a report, “Even GBTC unlocking events will all disappear before mid-August, thus further reducing the pressure of selling.”

Although JPMorgan Chase believes that GBTC unlocking may lead to “more generally downward pressure on GBTC prices and the Bitcoin market”, cryptocurrency-native investment institutions including Amber Group and Arca Funds have given very different views. They believe that the unlocking of GBTC may actually be beneficial to the price of Bitcoin.

Amber Group’s tweet stated: “Many of the bearish remarks surrounding the unlocking of GBTC ignore the BTC spot purchases brought about by short positions.” Arca’s Chief Investment Officer Jeff Dorman also gave it The same point of view, “large-scale unlocking may lead to a large number of GBTC selling on the open market. But it may actually bring buying pressure to Bitcoin rather than selling pressure. Because those who sell GBTC will have to return Buy Bitcoin to close the short position of the trade.”

Posted by:CoinYuppie,Reprinted with attribution to:https://coinyuppie.com/16200-unlocked-the-largest-single-day-unlocking-in-grayscale-history-how-does-it-affect-the-bitcoin-market/
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