Thread by @AllenAu11

Since mid-April, #BTC has corrected by 53% & this coincided w/ the unlock of 90M $GBTC shares while its premium <-10% for most of the time.

Did the unlock of these shares contribute to BTC's major correction? More coming? Price floor?

TLDR: Probable. Depends. $25K-$30K in June

1/ Let's first review some background information.

Accredited investors could subscribe for $GBTC shares from the Grayscale Bitcoin Trust (Trust) at (Net Asset Value) NAV in 3 ways though there is a 6-month lock up before they could sell their shares in the secondary market.

2a/ Use cash to buy $GBTC shares at NAV

i. If the premium persists upon the 6-mo unlock, investors are able to realize the spread
ii. They can gain #BTC exposure if there's a sustained premium
iii. This's what most institutional investors did until GBTC's premium became -ve

2b/ Send #BTC to the Trust & receive $GBTC shares at NAV

i. Upon the 6-mo unlock, investors sell the shares at market price
ii. As there exists no in-kind redemption, investors need to use proceeds from the share sale to buy back BTC in order to return to their base portfolio

2c/ Borrow #BTC & send them to the Trust to receive $GBTC shares at NAV

i. Upon the 6-mo unlock, investors sell the shares at market price
ii. They then use the proceeds to buy back BTC
iii. They pay back the BTC principal to the lender + interest

3/ When $GBTC shares had a sustained premium, the above were great trades for investors & contributed to GBTC’s big increase in AUM until the sustained premium became a discount starting in March 2021.

Funds flow dried up & the Trust stopped buying BTC & halted GBTC investment.

4a/ Let’s examine the impact on $GBTC’s negative premium on #BTC's price.

The majority of GBTC accredited investors should fall under 2a and 2c, which are mostly institutions and whales. BTC HODLers are unlikely to part with their BTC during BTC's bull phase.

4b/ If #BTC’s price increases while $GBTC’s premium is negative, 2c investors have the most to lose as their discounted GBTC shares may not cover the cost of their BTC spot purchases.

Thus, they have an incentive to suppress BTC's price before the 6-mo unlock period ends.

4c/ These 2c investors could:

i. Sell #BTC calls (bearish)/buy puts as BTC’s price falls
ii. Short BTC futures
iii. Do short selling of BTC

The coordinated FUD, overleverage, weak market sentiment helped them to hedge their $GBTC losses. Could they be the perpetuators of FUD?

5a/ There will be an unlock of 64M and 44M of $GBTC shares equivalent to 60K #BTC and 42K BTC in June and July respectively, valuing at $3.8B in today's BTC price.

Let's do a sensitivity analysis of the ROI of 2a and 2c investors for a given premium and BTC price.

5b/ These are the performance parameters and assumptions for #BTC and $GBTC in 12/2020 and 1/2021.

5c/ For 2c investors, their $GBTC return is negative in June if GBTC's premium is <0, so they will want to suppress #BTC's price.

For 2a investors, their return will be negative if BTC's price fall below $25K if GBTC's premium is between 0 and -15% (current range).

5d/ For 2c investors, their $GBTC return is negative if GBTC's premium is <0 in July, so they will want to suppress #BTC's price.

For 2a investors, their return will be negative if BTC's price fall <$45K if GBTC's premium is between 0 and -15% (current range).

6a/ #BTC’s price may lock in a range/trend lower in June if sentiment continues to be weak.

2a investors won't want BTC's price to fall <$25K. If 2c investors have already hedged their unrealized losses, BTC's price will see less pressure.

Est. price floor is $25K-$30K.

6b/ #BTC’s price may lock in a range/trend lower in July if sentiment continues to be weak.

2a investors won't want BTC price to fall <$45K. If 2c investors have already hedged their unrealized losses, BTC's price will see less downward pressure.

Est. price floor is $45K-$50K.

7/ If $GBTC's premium trends toward 0, this shows that 2c investors have already fully hedged their losses & are doing a reverse trade - Long GBTC & #BTC. The share unlock impact will be minimal then. There aren't too many GBTC shares to be unlocked after July so that is a plus.

8/ Conclusion: The unlock of $GBTC shares in April & May could've contributed to #BTC's major correction. BTC's price will see headwinds due to the unlock of GBTC shares w/ -ve premium in June & July. Sentiment shift could change that & share unlock will have 0 impact after July.