CoinShares Suggest $5B Outflow From GBTC Result in Capital Flight From Other Regions

CoinShares suggests that the recent decline in cryptocurrency prices, triggered by outflows from the Grayscale Bitcoin Trust (GBTC), may have led to the outflows observed in digital asset investment products in Europe and Canada.

“Recent price declines prompted by the substantial outflows from the incumbent ETF issuer (Grayscale) in the US totalling US$5bn, have likely prompted further outflows [in] other regions,” CoinShares explained in a Jan. 28 report.

According to CoinShares' data, digital asset products from Switzerland and Germany experienced the greatest impact during the trading week of January 22nd to January 26th, with outflows of $59.8 million and $31.7 million respectively.

Conversely, Canadian digital asset products have demonstrated the largest outflows over the course of the month, totaling $209.8 million. This is followed by German products with outflows of $124.5 million and Swedish products with outflows of $34.2 million

Among the major digital asset products, Brazil was the sole recipient of inflows last week, with a notable amount of $10.3 million.

CoinShares pointed out that the second week of spot Bitcoin ETF trading in the U.S. resulted in a significant outflow of nearly $500 million on its own.

Despite the nine newly introduced spot Bitcoin (BTC) ETFs generating approximately $1.8 billion in inflows, these were insufficient to offset the significant outflows of over $2.2 billion from Grayscale's converted spot Bitcoin ETF, GBTC, during the same week.

According to CoinShares, the outflows from GBTC are showing signs of slowing down, as the daily total of outflows continued to decrease throughout the week.

According to data from YCharts, GBTC provided a lucrative opportunity for investors over the past few years. Investors would borrow funds to invest in the fund and take advantage of the Grayscale premium, which reached a peak of 43% in July 2019, allowing them to make profitable trades.

The GBTC arbitrage trade ceased to exist when the premium unexpectedly flipped into a discount in February 2021.

As a result of the minimum six-month lock-up period imposed on investors buying GBTC shares, numerous investors found themselves stuck in the fund, reluctant to sell their shares at a progressively deteriorating discount.

According to YChart's data, after GBTC transitioned into a spot Bitcoin ETF, the discount has decreased from 1.55% to 0% as of January 26th.

CoinShares observed that GBTC has experienced a loss of $5 billion this month. However, the newly introduced spot Bitcoin ETFs have accumulated a total of $5.94 billion in inflows since their launch on January 11th.