Bitcoin’s rise is sluggish, does “gray effect” still work?

On December 16 last year, bitcoin stood at $20000, breaking the peak of nearly $20000 in the previous bull market; half a month later, on the second day of the 2021 new year, bitcoin quickly broke through $30000; and in less than a week, bitcoin quickly rose to $40000. #Bitcoin: two and a half months and a week… Some people say that this is compound interest; some say that the eternal bull market has come, and the future is the stage of accelerating the rise; some people feel that after a year’s hard work, bitcoin has never been better than bitcoin. The whole industry is like the Chinese New Year. It celebrates the sea of stars and dreams of a bright future. However, the eternal bull market did not come as scheduled. In the past two weeks, bitcoin has been tumbling down, falling below 29000 on January 22nd. In a few days, ten thousand dollars fell sharply, but in the past, I couldn’t even think of it. The panic and greed index suddenly dropped to 40. Various communities and communities also had a heated discussion. The topic of bitcoin falling below 30000 US dollars was put on the hot microblog search list. Panic and greed index (0: extreme panic; 100: extreme. For Hodler, who has experienced big waves in the currency circle, the recent shock may not be much. After all, everyone’s cost price is generally not high, and in the past 2020, we have just experienced a drop of more than 50% in one day. But for the newcomers who have just entered the bull market, it is estimated that they are scared to death. I have seen some of the big V’s microblog comment areas, which have been filled with all kinds of bearish Views: “is the cow gone?” “It’s not far away from 20000”, “no, I won’t buy it at the highest point…” “quilt covers are dead dead!” Does “gray effect” work? In the past two weeks, the position of gray fund has increased by nearly 40000 BTCs. There are also many people around me asking: Gray has been buying and buying. Why has the currency price fallen? This is actually a misunderstanding of gray by the media and many friends. They think that grayscale does not ask about the rise and fall of the market, and has been hoarding money silently. In the words of Shenyu, “grayscale is not a coin that can be bought.”. Why do you say that? Here we need to start from the gray mode of operation. Gray is an investment company that manages cryptocurrency trust funds, and its operation mode is similar to gold ETF: Gold ETF The fund is a large gold producer to sell physical gold to the fund company, and then the fund company, relying on this, publicly issues fund shares in the exchange and sells them to investors. Commercial banks act as the fund custody bank and physical custody bank respectively, and investors can freely buy, sell and redeem during the duration of the fund. The cryptocurrency trust products of gray-scale fund mainly have two kinds of purchase forms: 1) one is the physical purchase, the investor directly gives the digital currency to the gray-scale trust fund, and then exchanges the GBTC and other trust fund shares. 2) The other is the purchase of funds. Investors pay cash directly to Genesis global trading, an OTC business of DCG, the parent company of gray scale. After receiving French currency, genesis will convert it into digital currency according to the currency price and give it to grayscale, and then gray scale will issue trust fund shares to investors. Different from gold ETF, gray fund shares do not support redemption and need to be locked after they are sold (GBTC lock up period is six months); moreover, there is no channel for investors to redeem the coins filled in by investors, and they can only cash out by selling corresponding fund shares in the secondary market. Therefore, the holding amount of gray scale funds has shown a unilateral upward trend since its establishment. Here we explain that in the secondary market, the cryptocurrency trust products of gray-scale funds go online on the secondary market trading platform. As long as investors have a U.S. stock account, they can purchase directly through these secondary markets. Taking GBTC as an example, due to the huge market demand, the price of GBTC in the secondary market often has a premium relative to the net value. Premium brings arbitrage space. According to the gray level official report, most investors of cryptocurrency funds come from institutional customers. In Q4 of 2020, institutional customers account for 93% and institutional customers account for 87% of the whole year in 2020. At the same time, the gray bitcoin trust fund has become the main channel for institutional investors to enter the BTC market, and a key factor that attracts institutional investors to enter BTC market is the premium. Due to the long-term positive premium of GBTC, there is arbitrage space between the primary and secondary markets, which attracts many institutions to carry out arbitrage activities: 1) institutions can borrow BTC, give them to gray bitcoin trust funds, obtain GBTC shares, sell them in the secondary market after unlocking, and then buy BTC to repay loans. 2) In addition, institutions can also buy GBTC shares directly into gold, and open short hedging in the futures market. After GBTC is unlocked, they can sell in the secondary market, and the futures are flat. The profit obtained by these two forms of arbitrage activities = GBTC premium – loan / hedging interest – gray management fee, etc. Therefore, when you see the news that gray is increasing its holdings of bitcoin, you can basically draw a judgment: arbitrage institutions have optimistic expectations on GBTC premium. In a brief summary, it is not gray scale buying currency, but investors are buying (mainly institutional investors), and investors are not only buying but not selling. Investors can sell and arbitrage in the secondary market of the US stock market after the shares are unlocked, and they can arbitrage from the positive premium. Although the arbitrage opportunities brought by premium increase the potential market selling pressure, due to the gray-scale fund can not be redeemed, the listing and circulation market of GBTC shares is isolated. Investors can not sell Trust shares in the encryption market, but can only sell them in the secondary market of the US stock market, which is equivalent to transferring the market selling pressure to the US stock market. What impact will the fund unlock bring to the currency price? Although the gray level does not buy the currency by itself, does the gray level fund have any impact on the currency price? Will fund unlocking affect the price trend? Jarvis labs has done a survey on this, which decomposes the periods when the gray bitcoin fund has a large amount of capital inflow, and observes the spot market price trend of bitcoin shortly after share unlocking. We have selected some data of the past year to show you. There are several continuous capital inflow periods in 2020: 1) from January 20 to January 27, the lock up period is six months, and the unlocking period is from July 20 to July 27; 2) from April 27 to June 29, after six months of lock up, the unlocking starts on October 27 and lasts for 9 weeks until December 29. As can be seen from the figure below, there is an obvious upward trend in the price of bitcoin in these two unlocking periods. Let’s take a look at the capital inflow of the gray bitcoin trust fund in the past few months. You can clearly see that after October 28, 2020, the growth rate of large amount of capital inflow increased, and continued until the end of December. The corresponding unlocking period of this period is from the beginning of May to the end of June. You can guess what will happen to bitcoin in May and June this year when large-scale grayscale unlocking comes? Maybe you will know what to do in the next few months – wait patiently, keep your money in your hand, and never lose your precious pie. (this article does not constitute an investment proposal)

Leave a Reply

Your email address will not be published. Required fields are marked *