Grayscale has started transferring Bitcoin out of its trust and to Coinbase since 9:00 p.m. on January 12 (Vietnam time). A total of 4,000 BTC (about $200 million) has been sent as of press time, with all Bitcoin going to Coinbase Prime, one of the major participants in the series of Bitcoin ETFs launched yesterday.
Coinbase serves as a broker and trading partner for most ETF issuers, including Grayscale. Thus, it is likely that this transfer shows cash flowing out of the Trust through yesterday’s sales. The last withdrawal before today was about 2 weeks ago, with multiple transactions going in and out of the Grayscale Bitcoin wallet.
Although spot Bitcoin ETFs track Bitcoin prices directly, they do not require issuers to buy and sell Bitcoin directly during trading hours. For example, the key times when Bitcoin is bought or sold in relation to the creation and redemption of ETF shares in the Grayscale ETF can be summarized as follows:
Create Baskets (Buy Bitcoin):
- Authorized Participants place orders to create Baskets with Transfer Agent before 1:59:59 p.m., New York time, on any business day.
- Sponsor determines Total Basket Net Asset Value (NAV) and any variable fees as soon as possible after 4 p.m., New York time.
- The liquidity provider transfers the Total Basket Amount (in Bitcoin) to the Trust’s Vault Balance on T+1 or T+2, depending on the order time.
Buy Back Baskets (Sell Bitcoin):
- Authorized Participants place redemption orders with Transfer Agent no later than 1:59:59 p.m., New York time, on each business day.
- Sponsor determines Total Basket NAV and any variable fees as soon as possible after 4 p.m. New York time.
- The Liquidity Provider transfers the Total Basket NAV (less any variable fees) to the Cash Account on T+2 (or T+1 as the case may be, as approved by the Sponsor).
In both cases, the key time to initiate an order is before 2 p.m., New York time, on a business day. The actual transfer of Bitcoin (to the Trust’s Vault Balance in case of creation or from Custodian to Liquidity Provider in case of redemption) occurs on T+1 or T+2, depending on the specific case body of command.
These transactions have the potential to affect the spot price of Bitcoin, especially if large orders are placed. However, the exact impact on spot prices will depend on a variety of factors, including the size of the order relative to Bitcoin’s average daily trading volume and market conditions at the time of the transaction.
The transfer of Bitcoin from the trust, and the timing consistent with the creation and redemption process, suggests that perhaps only $200 million worth of redemptions were deemed necessary by Grayscale after the first day of trading. It is important to note that this is highly speculative, but could be a reason for the capital outflows mentioned above.
