Tipping the Grayscale
5 min read

Tipping the Grayscale

B21 Crypto. We help you stomach cryptoassets.

Cryptic ball: remember the summer range.

As anticipated, this was a fairly uneventful weekend and that's exactly what one wants. However, it seems that BTC is approaching that $33k test scenario laid out last Thursday, as it fell 7% over the past 24 hours since failing to overcome the 200-period moving average on the popular 4-hour chart. For now, there's some support at $33k, which incentivises both bulls and bears to tap that level for liquidity, i.e. to drive price below $33k to capture the stop orders placed there.

What happens then is key. If there's enough demand and that was just a move aimed at getting longs filled at a nice price, then it's more of the same: i.e. we remain sideways while aiming to pull a slow ascent. If not, then it's possible bears try to liquidate leveraged longs to see how low the liquidation cascade can take us. Fortunately, there's not much leverage in the market right now. However, there's fresh FUD around the corner - which could have a similar gravitational pull.

Chart art: things will be uneventful until we get a clear move.

In addition to the failed 200-MA test, bitcoin also failed to produce a higher high, prompting Crypto Twitter to instantly flip bearish. But remember the summer range!

Market musings: this could be what fuels such a move.

The current FUD concerns Grayscale's Bitcoin Trust and pairs nicely with the overall weakness displayed by bitcoin's price while it remains rangebound. Grayscale is the world's largest cryptoasset manager and its Bitcoin Trust (GBTC) allows traditional investors to gain exposure to BTC since 2013. Historically, GBTC shares were always traded at a high premium to the value of bitcoin held in the fund - a sign of high institutional demand - until that changed this February.

Since 2015, non-accredited investors can buy shares in GBTC - which are sold by accredited investors in exchange of bitcoin deposited in the trust. These deposits have a six-month lock period to ensure investors that want to accrue those hefty premiums in a risk-free arbitrage can't dump their new shares right away. Well, back in December those premiums reached 40% and JP Morgan reported that $3.7 billion flowed into GBTC between December and January, as many wanted in.

The investment bank had already warned about this two weeks ago, hinting that the end of the lock-up periods over the next weeks would "exert further downward pressure" on the market. But that was largely ignored, given that the easy arbitrage opportunity has faded away since the end of February and that its net effect was mostly neutral, as Arca's Jeff Dorman recently explained in his take: Debunking Bear Thesis #9. Why are we talking about this then?

Because the new narrative, popularised by Alex Mashinsky, founder of Celsius Network, argues that because those unlocked funds can't benefit from the arbitrage trade - given there's no premium to collect - they will then will dump their GBTC shares (without crashing the market), and then use that money to short BTC one more time before loading up on discounted GBTC in the end. Yes, it's farfetched, and we don't agree with it. But if bitcoin continues moving towards $30k over the next ten days, when the last unlocks take place, this could be it.

Visual block: who knew Grayscale could be a source of FUD.

Overall, JP Morgan argued premium subsided as funds which bought in 2020 arbitraged it away and due to a Bitcoin ETF launched in Canada this January, which is also accessible in the US.

Three things: sub-title

Tweet tip: we're with the DonAlt on this one.

DonAlt was a legit trader back in the day. He's not always right, but this is sound advice.

Meme moment: specifically that small boat.

It's that or bulls trying to stop the FUD.

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Our newsletter offers opinions and insights from analysts in the cryptoasset space. It is not intended to be investment advice, and should not be treated as such. You must not rely on its information as an alternative to financial advice from a qualified professional. Without prejudice, we do not undertake or guarantee that its information is correct, complete or non-misleading; or that the use of guidance in the report will lead to any particular outcome or result.