The potential approval of a Bitcoin spot ETF by the SEC has been eagerly anticipated by many crypto investors. The belief is that it would trigger significant new capital inflows and propel Bitcoin’s price higher, perhaps even igniting the next bull run. However, crypto analyst Crypto Rover is highlighting an overlooked consequence – the spot ETF could actually create substantial selling pressure.
Crypto Rover explains that ahead of the approval, investors are speculating on the event by purchasing shares of Grayscale’s Bitcoin Trust (GBTC), which holds over 636,000 BTC. The GBTC trades at a discount to Bitcoin itself, allowing investors to effectively acquire Bitcoin exposure at a 17% discount compared to buying the cryptocurrency directly.
Once the spot ETF is approved, investors could then sell their GBTC shares and rotate that capital into the new spot ETF. This would likely eliminate GBTC’s pricing discount and potentially generate up to 20-30% returns for traders who got in early.
A Potential Bitcoin Dump After Approval
Herein lies the selling pressure risk. To realize those gains, investors would redeem their GBTC shares and receive physical Bitcoin in return. They would then need to sell that Bitcoin, representing over 636,000 coins coming onto the market, to rebuy into the new spot ETF.
Essentially, approval would trigger a mass migration out of GBTC into the lower-cost ETF structure, but require dumping the associated Bitcoin on the way. Rather than new money flooding into Bitcoin itself, existing Bitcoin would be redistributed from GBTC holders to the spot ETF.
This potential flood of 636,000 BTC hitting the market could negatively impact Bitcoin’s price, especially if it coincides with already weakening market conditions.
While the ETF approval would be a long-term positive, Crypto Rover believes the short-term selling effects are being overlooked. Traders anticipating a massive spike from the news may need to temper their expectations and brace for potential downside volatility in the transition process.
As with any market event, unintended consequences can emerge. Crypto Rover raises an important consideration for investors betting aggressively on a near-term Bitcoin price surge following a spot ETF green light. The reality may not align with the theory.
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