Is FTX Partly Responsible for the BTC Dump?  

The recent downturn in Bitcoin’s (BTC) price, following the approval of bitcoin ETFs, has sparked speculation about the role of FTX’s liquidation of substantial holdings in this downward trend. As BTC ETFs were greenlit, a significant selloff of the Grayscale Bitcoin Trust (GBTC) was observed, with investors offloading over $2 billion worth of GBTC since its transformation into an ETF.

A notable portion of this selloff was due to FTX’s bankruptcy estate liquidating 22 million GBTC shares. This selloff by FTX’s bankruptcy estate, a relatively rare event, might have contributed to the recent price decline.

The Grayscale fund, in existence for a decade as a less appealing closed-end fund, had amassed nearly $30 billion in assets. The SEC’s approval of its conversion to an ETF, along with the endorsement of 10 new bitcoin ETFs, was expected to herald a new era for BTC investment. However, despite the introduction of new funds from entities like BlackRock and Fidelity, which have seen inflows, GBTC has experienced significant withdrawals.

The data indicates that FTX’s liquidation, reducing its GBTC ownership to zero, accounted for a substantial part of this exodus, with the sold shares valued at close to $1 billion. This selloff contrasts sharply with the optimistic forecasts that surrounded the anticipated approval of bitcoin ETFs, expected to simplify BTC investment for the average person.

FTX, like many major crypto trading firms, had previously leveraged the disparity between the price of Grayscale trust shares and the underlying bitcoin’s net asset value. At one point, FTX held 22.3 million GBTC shares, valued at $597 million as of late October 2023, which ballooned to about $900 million based on GBTC’s trading price on its inaugural day as an ETF.

FTX’s investment portfolio extended beyond GBTC, including holdings in five Grayscale trusts and a significant stake in a statutory trust managed by ETF provider Bitwise, held through a brokerage account at ED&F Man Capital Markets (now Marex Capital Markets Inc.). However, both Marex and Galaxy Digital, aiding in the FTX bankruptcy estate’s asset sale, have refrained from commenting on the situation.

In a related development, Alameda Research, closely associated with FTX, has recently withdrawn a lawsuit against Grayscale over claims of exorbitant fees, adding another layer to the unfolding narrative of FTX’s impact on the BTC market.