Bitcoin: is the crash now imminent?

They are called crypto whales. With their enormous investments, investors worth billions dominate the comparatively young market for cryptocurrencies. One of those whales is Grayscale, the world’s largest digital wealth manager. Grayscale currently holds around 650,000 Bitcoin, worth $20.2 billion. After all, that is around 3.5 per cent of the entire Bitcoin market.

No wonder, then, that the crypto community is in an uproar whenever Grayscale buys, sells or announces anything similar to Bitcoin. Because of their high market shares, the thick crypto fish can massively influence the Bitcoin price.

The so-called Bitcoin Unlocking, soon available at Grayscale, receives attention. The asset manager released shares worth 40,000 Bitcoin, 16,000 of which should be this weekend alone. This is the new bitcoin buyer app website where shares price can depend on cryptocurrency.

Grayscale Bitcoin Trust – what exactly is being released?

First of all: Grayscale is not throwing 40,000 Bitcoin onto the market. It would probably actually lead to a massive drop in prices. To understand what’s coming to market, you must look at Grayscale’s product. The investment company manages a so-called Bitcoin Trust (GBTC), i.e. a fund that enables investors to invest in Bitcoin in this way easily. These are traded like other fund shares.

However, the investors in the Bitcoin Trust are not private investors but institutional, i.e. professional investors. Among them is star investor Cathie Wood from Ark Invest. She recently took advantage of falling bitcoin prices to add nearly $30 million to her position in the trust. Not all institutional investors can or want to invest directly in Bitcoin for regulatory reasons and prefer to use vehicles such as the Grayscale Trust. The digital asset manager Grayscale then keeps the money collected from customers in Bitcoin.

Like Wood, those who invest in GBTC are subject to a lock-up period. However, since Grayscale invested heavily in Bitcoin in January and sold shares in the trust, the so-called unlocking is now taking place, the blocking period expires, and the shares can be sold again.

If many trust shares are sold, this does not mean at the same time that Grayscale has to sell Bitcoin. It is one of the reasons why the previous unlocking has not caused the Bitcoin price to collapse. Nevertheless, the question arises as to whether and how unlocking could affect the price.

Is Bitcoin Price Rising or Falling?

This question is controversial. Some speak for falling prices, others for rising. However, it’s important to remember that shares in the trust sold at a premium in December and January when they were purchased. In other words, the fund shares were relatively more expensive than the underlying Bitcoin. Nevertheless, investors still paid the premium because they expected prices to rise. Meanwhile, since the price of Bitcoin has fallen significantly since April, the shares are being traded at a discount.

For this reason alone, some market observers expect that there will not be a big sell-off since investors are simply waiting until the trust’s price rises again. In addition, the unlocking has long been priced in; the price has recently moved more sideways.

If many trust shares are nevertheless sold, the price of the shares falls below the current Bitcoin price. As a result, it makes an investment in the trust more attractive and could lead to less demand for Bitcoin. Therefore, some analysts fear that the Bitcoin price will continue to fall, in case of doubt, well below the $ 30,000 mark.

At the same time, there is some evidence that the price of Bitcoin could even rise in the medium term. Therefore, investors usually also short the corresponding underlying asset parallel to their investments, i.e. hedging it through short sales.

For example, a borrowed security or a cryptocurrency is sold in such short sales. The short seller speculates that the price will fall and, if his bet is successful, can later buy back the asset sold at a lower price and return it to the lender. So if you now want to sell shares and liquidate the short positions, you would have to buy Bitcoin at the same time to close your short positions. It, in turn, increases demand and prices.

Overall, much will depend on the premium investors bought their trust shares and whether they sell that many shares. Another development at Grayscale is also more interesting for the Bitcoin price in the long term.

Because the asset manager has just merged with BNY Mellon, the American central bank and the Bitcoin whale recently announced that they want to work together in the future. BNY Mellon to handle accounting and administration for the Bitcoin Trust. It could bring the goal of converting the trust into an exchange-traded fund (ETF) closer. “The onboarding of BNY Mellon is an important milestone in our commitment to convert the Grayscale Bitcoin Trust into an ETF,” said Grayscale CEO Michael Sonnenshein.

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