This week, IntoTheBlock brings us a breakdown of the Grayscale Bitcoin Trust, as well as Bitcoin mining right now.
Every week, IntoTheBlock brings you on-chain analysis of top news stories in the crypto space. Leveraging blockchain’s public nature, IntoTheBlock’s machine learning algorithms extract key data that provide a deeper dive into the major developments in the industry.
Analyzing the Impact of GBTC’s Unlock & Miners’ Stabilization
During the past week, Bitcoin sustained its price around the $32K mark. The industry experienced several upcoming news that may bring volatility and speculation into the market, with the unlocking of Grayscale’s GBTC and miner activity both being closely-watched catalysts.
Grayscale Bitcoin Trust (GBTC) is an exchange-traded note that allows traditional finance investors the option to get exposure to Bitcoin without having to deal with the technical and legal obstacles that holding your own BTC implies. The fund currently holds 654,600 BTC, which has an approximate valuation of $21.47 billion. This constitutes 3.11% of the total Bitcoin supply of 21 million, making it the largest public Bitcoin holder.
Recently, the news that Grayscale’s GBTC will be unlocking 40,000 Bitcoin has brought a lot of attention to the media and speculations regarding the last unlocks were drawn. Throughout this week, GBTC has been going through a process of unlocking the shares of institutional investors who subscribed directly to GBTC six months ago. This group of shares consist of all the new positions from Q1 2021. This will make it the largest ever unlock process in GBTC fund history. Notably, Ark Invest will be one of the public entities getting their GBTC unlocked, a company which earlier this month also filed to have their own Bitcoin ETF.
To analyze the implications of this unlock, it is helpful to examine how GBTC has been performing relative to Bitcoin.
Previously, individuals investing into GBTC were able to buy at a premium and they were able to capture the difference in the open market by selling their position after the unlock period. Following the Q1 2021 unlock process, the fund fell into a discount, as can be observed by the divergence starting to grow throughout February in the price performance chart above.
During this July last unlock phase, possible opportunities for arbitrage trades will rise, bringing speculation and volatility into the market. Since GBTC traded at a premium six months ago, many traders were buying it and shorting BTC in spot markets to make the difference between the two. Now that these positions unwind at the unlock, it is likely that the complementary short positions will get closed, meaning that potentially the unlock would create buy pressure.
On the other hand, JPMorgan sees the unlock as a risk for further downfall. They reportedly foresee investors who bought months ago as likely to take profits, leading to “downward pressure on GBTC princess and on Bitcoin markets more generally.” With valid arguments on both sides, it is worth keeping an eye out for potential volatility arising from the upcoming unlock.
Another important market-driving event has been the mining migration. This has led to some challenges in the past months regarding China’s regulation enforcements and restrictions towards the mining activity ban in the country as covered in this piece.
Miner Reserves measure all of the existing Bitcoin addresses that have ever minted Bitcoin and add their total balance in order to obtain their total reserve. This indicator has been affected by the mining migration. The reserve had been declining in BTC holdings throughout the last month, suggesting that miners were selling Bitcoin for cash. Throughout the last week, Bitcoin miner reserves started to increase, signalling a positive development following their significant drop in June.
Over the past two weeks, Bitcoin miner reserves increased by 3.5%. What this could possibly mean is that the miners relocation is mostly over and that their migration expenses are already paid for. This had been a major concern since miner reserves had dropped approximately 7% from their May high, likely due to Chinese miners decreasing their holdings to fund moving expenses.
In addition, an important metric which also has shown signs of relief is the hash rate. The hash rate is a measure of the aggregate computing power devoted by miners to secure the blockchain. Bitcoin’s hash rate had been in decline since the beginning of June when the China mining ban was implemented. Throughout the beginning of this month, the hash rate registered a slow but steady increase.
As shown above, the hash rate increased from 62.03m TH/s on June 27 to a high of 115.45m TH/s on July 10, representing growth of 86%. The growth in hash rate reinforces the hypothesis that miner activity is stabilizing following their relocation phase.
While the Grayscale unlock situation poses uncertainty, it is possible for its outcome to go either way. Regarding the mining events a positive trend is shown by both indicators given a possible signal that the worst is already over. There are also some relevant important upcoming news to keep in mind. Two congressmen of the country of Paraguay are looking to introduce a proposal for Bitcoin legislation and ETF’s fillings with the SEC keep piling up, currently major finance firms are in the process of being reviewed. Possibly this could be good news towards the industry. Both could continue to drive investment and adoption of it.
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