Technology Sector

An ETF could hurt Bitcoin's price in the short term: JP Morgan

With expectations of the SEC approving a BTC ETF soon, JP Morgan analysts have hypothesised that this may lead to short term downward pressure on the price of Bitcoin.

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13th January 2021, 22:44 GMT 

It is becoming more and more likely that a bitcoin ETF will become approved by the SEC with the Biden administration expected to bring in new leadership. This would create greater access to Bitcoin, especially for institutional investors. The SEC said that a BTC ETF would be approved if there was sufficient liquidity and transparency in the cryptocurrency markets.

 

However, according to a recent report by J.P Morgan, a Bitcoin ETF would damage the price of BTC in the short term, despite it being a long term positive. This is because, the only way for a lot of players on wall street to gain exposure to BTC is through the Grayscale Bitcoin Trust. This is mainly due to regulatory restrictions. Therefore, institutions often have to buy shares of GBTC on the secondary market at a premium. This 'premium' is a reference to the difference between the Net Asset Value (NAV) of the GBTC holdings and the market price of the holdings. A lot of institutional investors make money by buying at or close to NAV and then selling at a premium after the 6 month lockup.

 

The introduction of an ETF may, according the J.P Morgan, cause the premium to shrink as there is no longer the same kind of need for GBTC. This would diminish the popularity of the NAV premium trade, and money would flock out of GBTC in the short term. In the longer term, money would move into the BTC ETF and so the BTC price won't necessarily be hurt by this.

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Bitcoin

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Grayscale BTC Trust