A Bitcoin ETF Would Have Negative Near-Term Implications for BTC Price: JPMorgan

Besides a Bitcoin ETF eroding GBTC's effective monopoly status and causing a cascade of GBTC outflows, the bank strategists also see more mainstream corporates following Tesla “unlikely.”

JPMorgan’s latest take on Bitcoin is yet again falling on the bearish side despite the $1.50 billion worth of Bitcoin purchase made by Tesla.

As a matter of fact, JPM strategists don't see this 8% of cash reserves’ allocation to Bitcoin to be followed by more mainstream corporates. Trader and economist Alex Kruger said,

“I'd be very surprised if that's the case. And there's plenty of time. Even if right, betting on no follow through is a bad bet regardless, as the associated payoffs are asymmetrical.”

This is not all from the banking giant strategists, who also think the SEC approving a Bitcoin ETF in the US this year, rising in anticipation of SEC leadership changes, may have a “negative impact” on Bitcoin in the near term.

The reason for the same is a potential decline in the Grayscale Bitcoin Trust (GBTC) premium to NAV from the introduction of bitcoin ETF in the US, which the strategies say “would unwind a big portion of GBTC investments currently placed for monetizing this premium.”

The largest asset manager GBTC holds 650k BTC, almost 3.5% of Bitcoins’ circulating supply. Its GBTC shares are currently trading at a 9% premium, down from above 40% in December.

This premium arises from the fact that many institutional investors are only allowed to invest in Bitcoin in fund format for regulatory or preferred custody reasons.

“Some institutional investors likely subscribed to GBTC (at NAV) during the second half of last year with the intention of selling after the 6m ‘unlock period to monetize the premium,” reads the report.

The strategists further say that the GBTC premium monetization trade could account for around 15% of outstanding GBTC stock, and the next six-month unlocking period might see some of these institutional investors selling their GBTC during the first half of 2021 to “monetize the premium” and put downward pressure on GBTC premiums.

“This unwinding of the GBTC premium monetization trade could become more violent if a bitcoin ETF is approved in the US.”

As such, the JPM strategists said the introduction of a Bitcoin ETF that allows for daily creation and redemption of shares would erode GBTC's effective monopoly status and cause a cascade of GBTC outflows, which would likely have negative near-term implications for BTC price.

“This is short-sighted. An ETF would unleash massive new demand from both institutions and retail,” argued Kruger.

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