Grayscale Outflows Drop, Offering Respite for Bitcoin Price: What’s Next?

A torrent of outflows from Bitcoin investment funds appears to be slowing, offering some respite after analysts pinned huge withdrawals as a catalyst behind BTC’s 2023 decline.

TLDR

• JPMorgan analysts believe the bulk of selling pressure on Bitcoin’s price from Grayscale’s GBTC converting to an ETF is likely over
• GBTC saw outflows of $4.3 billion since becoming an ETF, which JPMorgan says led to Bitcoin’s 20% price drop under $40,000
• However, GBTC outflows dropped to just $394 million on Jan 25, the second lowest on record
• Meanwhile, other US Bitcoin spot ETFs saw a record $158 million in net outflows on Jan 24
• Bitcoin price faces resistance around $40,500 and needs to break above $42,000 to turn bullish again according to technical analysis

Bitcoin spot exchange-traded funds (ETFs) in the U.S. saw record net outflows of $158 million on Jan. 24, the largest single day of withdrawals since several funds launched this month. The big losers were pioneers like Grayscale, which opened the floodgates when it converted its popular Bitcoin Trust (GBTC) into an ETF structure.

GBTC has suffered an exodus of funds, bleeding $4.3 billion since flipping the switch to become an ETF on Jan. 11. JPMorgan analysts pointed to profit-taking and tax-related selling as investors pulled money from what was formerly the largest Bitcoin fund. Its discount to net asset value also encouraged withdrawals.

However, the tide may be turning based on the latest data. Outflows from GBTC dropped to just $394 million on Jan. 25, the second smallest daily decline on record. This has JPMorgan analysts forecasting an end to the sell-off that has dogged Bitcoin’s price over the past month.

Here is the chart for day 9, with all data out

Day 9 was pretty weak for Blackrock, with +$66m

Fidelity performed well: +$126m pic.twitter.com/2VzTpZWOKx

— BitMEX Research (@BitMEXResearch) January 25, 2024

The analysts stated “most of the downward pressure on Bitcoin from that channel should be largely behind us.” After plunging below $40,000 partly due to GBTC outflows, Bitcoin is stabilizing and now gearing up for a potential recovery.

Technical analysis shows Bitcoin faces resistance around $40,500 and needs to break above $42,000 for a convincing bullish turn. It’s a battle between increasingly exhausted sellers and buyers struggling to regain control of the market.

Other spot ETFs like those from Fidelity and BlackRock saw mixed demand. Fidelity’s fund added 3,170 BTC on Jan. 24 while BlackRock’s flagship fund suffered its lowest inflows since launch. But their assets under management remain strong at nearly $3 billion combined.

With the worst of GBTC’s decline apparently over, analysts hope funds will stabilize and unlock fresh institutional investment to restore upside momentum for Bitcoin. But technical headwinds persist and buyers have yet to confidently return. The next few weeks will be crucial in determining if this period of weakness for BTC and broader crypto markets is truly nearing its end.