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FTX Fallout: $1 Billion Blow to Grayscale’s Bitcoin ETF

The aftershocks of FTX’s bankruptcy continue to ripple through the cryptocurrency market, this time impacting Grayscale’s newly minted bitcoin exchange-traded fund (ETF). A recent report by Coindesk suggests that FTX’s bankruptcy estate played a significant role in the substantial outflows from Grayscale’s bitcoin fund following its transformation into an ETF earlier this month.

FTX, once a titan in the crypto world, sold off an eye-catching 22 million shares of the Grayscale Bitcoin Trust (GBTC), valued at approximately $900 million. This sell-off effectively wiped out FTX’s holdings in the fund. This move is a significant contributor to over $2 billion in shares being sold off from GBTC since it became an exchange-traded fund. Grayscale, pioneering the first bitcoin ETF to start trading, has experienced these higher outflows partly due to FTX’s actions.

The trust, valued at $27 billion, transitioned from a closed-end fund to an ETF with the Securities and Exchange Commission’s (SEC) approval on January 11. Grayscale did not immediately respond to inquiries for comment on this development.

Even before the SEC’s approval, a fee war was already brewing in the ETF space. Grayscale’s competitors were charging fees ranging from 0.2% to 0.9%, while GBTC maintained a fee of 1.5%. This fee structure might have contributed to some of the fund’s challenges.

The approval of ETFs was initially met with optimism, with many expecting a boost to bitcoin’s price. However, both the token and GBTC shares have seen declines of 13.69% and 12.68%, respectively, since January 11.

Prior to the SEC’s green light, Standard Chartered had projected a bullish future for bitcoin, predicting its price could soar to $200,000 by the end of 2025. This optimism was based on the assumption that U.S. spot ETFs could hold between 437,000 and 1.32 million new bitcoins by the end of 2024, potentially attracting inflows of $50 billion to $100 billion this year alone.

For investors and entrepreneurs in the crypto space, these developments serve as a stark reminder of the interconnectedness of the cryptocurrency ecosystem and the profound impact major players can have on market dynamics. As the industry continues to evolve amidst regulatory changes and market shifts, stakeholders are keenly observing how these events unfold, shaping their strategies in this volatile yet potentially lucrative market.