Well, I’m late to the party to write about the ‘premature announcement’ on X, so I’m not going to cover that comedy skit here. Instead, I will try to put on the hat of an analyst to find out why in the blue hell we’re not all millionaires yet.
Why did the crypto market not skyrocket and what do we, the esteemed monkeys of planet Earth, need to understand about the whole shebang?
Whales Prefer ‘Over The Counter’ Markets
These ETFs may be swimming in billions, but they’re not trading with us orangutans on Coinbase or Binance. They’re too cool for that.
Enter the “Over The Counter” market, where exchanges play matchmaker for whale buyers and sellers. Why? Because there’s this thing called slippage, it is a real threat when you’re tossing around 10,000 BTC.
Slippage in the context of trading refers to the difference between the expected price of a trade and the actual price at which the trade is executed. It can occur when there is a rapid and substantial movement in the market, which happens all the time.
For a buyer, slippage means paying a higher price than anticipated, reducing potential profits. Conversely, for a seller, slippage leads to receiving a lower price than expected, increasing potential losses.
Large orders may not be filled entirely at the desired price too. As the market moves against the trader during the execution of the order, only parts of the order may get filled at progressively worse prices. This can result in incomplete order execution or a filled order at an unfavorable average price.
Hence, the OTC route. It is used for other reasons too, of course.
ETFs have a daily ritual: settling their fund activity based on the net amount of shares sold vs. shared purchased over the course of the trading days. If they had 500 shares sold and 750 shares bought, it means they need to cover 250 shares worth of BTC. But don’t expect them to do it in broad daylight on the exchanges.
It’s an OTC affair, hidden from the prying eyes of tradingview charts. Coinbase did $7.7 Billion worth of OTC transactions on the first day, which appears to be close to an all-time record!
Shocker! Trading Volume Includes Both Buys and Sells
So let’s state the obvious, just in case.
When we see that there was a $4.5 billion trading volume for the opening day, it doesn’t necessarily mean that we made this huge jump from one tree to the next one. If you bought 200 shares and then sold those 200 shares a few hours later, that’s 400 shares worth of volume today.
The net for the ETF is zero at the end of the day.
GBTC had $2.5 billion in volume, and you have to remember that “selling” GBTC in this context is essentially redeeming a share of GBTC by selling it back to Grayscale. GBTC had 4 years’ worth of block subsidies tied up now ready to be sold. So that’s that! There are additional reasons though:
- Profitable long-term HODLers cashed in now that the fund is trading
- Tax-advantaged funds have no tax penalties and can easily move to lower-fee funds
- Nobody buying the ETF BTC is going to choose the 1.5% fee option when Blackrock is charging 0.12%-0.25%
While GBTC was mostly redemptions, IBIT, FBTC, ARKB, and others were most likely creations, or buys. At the end of the day, the field is somewhat evened out. But I hear you asking…
What’s Next For Us, Simple Folks?
If redemptions die down a bit and if the other funds keep having inflows, there will be a net inflow of BTC.
This will suck up liquidity from the OTC market, and when OTC liquidity dries up, there is less OTC for whales who want to do whale things at the current price.
So it is entirely possible that we’re gonna witness a ‘brr number goes up, Lambos incoming’ moment if all falls down into place. $4.5B in the first day is massive and all the buying over the past few months to prepare for the ETF will probably get exhausted pretty fast. The price will go sideways while the ETFs chew through all the past few months, but that might only be weeks.
We waited for so long, what’s a few more weeks? We have learned to enjoy ‘The Crab Market’, so let’s be patient. But remember, this is not financial analysis, ok? The line goes up = ape happy is the most concrete thing you can carry out of this article. And no, all this monkey talk is not meant to be derogatory. Monkeys are actually better investors than you and I, and humans have proof of that.
All I’m saying is the ETFs are the big shots doing their secret whale dance in the OTC market to dodge slippages. And that monkeys totally rule. You can feel free to disregard my blog post and go eat a banana, I’ll understand.
But if you want to see what else is happening in my ‘Mind Palace’, I urge you to visit my personal blog. Until we meet again!