Remember to follow the incentives. ETFs are in the asset collection business. AUM is king and drives the financials behind their product. In the early stages, they have constant demand so they can increase AUM solely by gathering assets from customers which will build their fee base. However, they must be careful in this case as price of the underlying asset exploding too early could cause demand to prematurely dry up for their product before they have gathered their initial target AUM and BTC as investors may start to sit on the sidelines while they "wait for the correction". Luckily for them, they seem to have created a #Bitcoin bank which happens to hold negative sentiment and shared APs. So while we are all looking for the drying up of the OTC desks, it really doesn't matter yet. As @JoshMandell6 calls out in his comments below, they essentially may have created their own OTC desk where they can just go play the game and redeem in kind and take the #Bitcoin without needing to go onto the open market yet which would undoubtedly move the price. Now the billion dollar question. What happens after they are finished with their "operational shorting" and asset collection and how long will that take? In March, they drained an average of ~4,744 BTC from $GBTC per day. Entering April, GBTC has ~333,672 #BTC left which would indicate ~70 days of supply. But the reality is Grayscale isn't going to be drained of every BTC *if* they can help it. Enter the Grayscale Bitcoin Mini Trust. Why even have this product? Well, an attempt to stay in business in this space for starters. They currently have a captive investor group locked up from their first mover advantage with major capital gains hanging over them to get out and they think they can milk their high fee for longer (the investors know this, and investors don't like being held hostage). However, they are no doubt recognizing that their flagship product is getting wiped out at an alarming and accelerating pace (average daily sale was only 2,702 BTC in February) ensuring they fade into obscurity in the market while most recently being known only as the seed Bitcoin for their rivals. The artificially low (my opinion) BTC prices allow them to gather the most amount of underlying assets with the least amount of capital. If prices had exploded early, their ability to build their own BTC bases would have been that much more difficult. How quickly and with what size Grayscale can "spin-off" the Mini Trust will likely determine if they even get to keep a presence in this market. The size of that spin off will also have the ability to greatly shorten the operational shorting cycle of GBTC. So back to the big question. What happens when all these other funds now have to actually go out to the OTC desks and open market to fill their demand? And if demand slows even slightly, what is the next driver for ETFs to increase their AUM and obtain a material impact in their product revenues? I think we all have a pretty good handle on the supply/demand dynamics in play for this scenario and the marketing efforts sure to be behind it from these firms. The incentives point up. But let's take a scenario to understand why it matters. $IBIT currently has $17.8B in AUM for this product. With a 0.25% fee, this would yield them $44.5M annually. Now, if they are able to scoop up 100K more BTC from GBTC before the spout shuts off, they would have an estimated ~$24.8B in AUM yielding $62M in annual fees by let's say the end of April. But now they have to start going to the market to buy. The supply isn't abundant at the scale they will need and it may push the prices up quickly as they search to bring new sellers to the market. So for sake of argument let's say this causes price of BTC to increase to $200K by YE 2024. This means that their new revenue run rate going into 2025 is $176M annually without a single additional dollar of assets being collected after April. Not bad for a simple ETF product, right? Now picture these dynamics with BTC at $1M. At this price, this simple ETF would make up 5% ($880M annually) of BlackRock's total revenue. Think they'd like that? So follow the money of the most powerful organizations on earth and focus on their incentives. They don't tend to steer you wrong. So short the Bitcoin equities like $MSTR at your own peril, it is a bet against the incentives of the largest financial institutions on the planet now. But for now, we wait and we watch....
Remember to follow the incentives. ETFs are in the asset collection business. AUM is king and drives the financials behind their product. In the early stages, they have constant demand so they can increase AUM solely by gathering assets from customers which will build their fee base. However, they must be careful in this case as price of the underlying asset exploding too early could cause demand to prematurely dry up for their product before they have gathered their initial target AUM and BTC as investors may start to sit on the sidelines while they "wait for the correction". Luckily for them, they seem to have created a #Bitcoin bank which happens to hold negative sentiment and shared APs. So while we are all looking for the drying up of the OTC desks, it really doesn't matter yet. As @JoshMandell6 calls out in his comments below, they essentially may have created their own OTC desk where they can just go play the game and redeem in kind and take the #Bitcoin without needing to go onto the open market yet which would undoubtedly move the price. Now the billion dollar question. What happens after they are finished with their "operational shorting" and asset collection and how long will that take? In March, they drained an average of ~4,744 BTC from $GBTC per day. Entering April, GBTC has ~333,672 #BTC left which would indicate ~70 days of supply. But the reality is Grayscale isn't going to be drained of every BTC *if* they can help it. Enter the Grayscale Bitcoin Mini Trust. Why even have this product? Well, an attempt to stay in business in this space for starters. They currently have a captive investor group locked up from their first mover advantage with major capital gains hanging over them to get out and they think they can milk their high fee for longer (the investors know this, and investors don't like being held hostage). However, they are no doubt recognizing that their flagship product is getting wiped out at an alarming and accelerating pace (average daily sale was only 2,702 BTC in February) ensuring they fade into obscurity in the market while most recently being known only as the seed Bitcoin for their rivals. The artificially low (my opinion) BTC prices allow them to gather the most amount of underlying assets with the least amount of capital. If prices had exploded early, their ability to build their own BTC bases would have been that much more difficult. How quickly and with what size Grayscale can "spin-off" the Mini Trust will likely determine if they even get to keep a presence in this market. The size of that spin off will also have the ability to greatly shorten the operational shorting cycle of GBTC. So back to the big question. What happens when all these other funds now have to actually go out to the OTC desks and open market to fill their demand? And if demand slows even slightly, what is the next driver for ETFs to increase their AUM and obtain a material impact in their product revenues? I think we all have a pretty good handle on the supply/demand dynamics in play for this scenario and the marketing efforts sure to be behind it from these firms. The incentives point up. But let's take a scenario to understand why it matters. $IBIT currently has $17.8B in AUM for this product. With a 0.25% fee, this would yield them $44.5M annually. Now, if they are able to scoop up 100K more BTC from GBTC before the spout shuts off, they would have an estimated ~$24.8B in AUM yielding $62M in annual fees by let's say the end of April. But now they have to start going to the market to buy. The supply isn't abundant at the scale they will need and it may push the prices up quickly as they search to bring new sellers to the market. So for sake of argument let's say this causes price of BTC to increase to $200K by YE 2024. This means that their new revenue run rate going into 2025 is $176M annually without a single additional dollar of assets being collected after April. Not bad for a simple ETF product, right? Now picture these dynamics with BTC at $1M. At this price, this simple ETF would make up 5% ($880M annually) of BlackRock's total revenue. Think they'd like that? So follow the money of the most powerful organizations on earth and focus on their incentives. They don't tend to steer you wrong. So short the Bitcoin equities like $MSTR at your own peril, it is a bet against the incentives of the largest financial institutions on the planet now. But for now, we wait and we watch....
There is obvious coordination and that seems could be argued unfair and deceptive trade practices. What if our government proves this to be true and sues? At the state level, this is a very serious crime and 3x damages, plus punitive, plus attorney fees are available to be recovered.
@BenWerkman Yo Ben, send #BTC and MSTR to the moon!! Let’s see to it hodlers…
@BenWerkman excellent post, ben. you outdid yourself on this one!
@BenWerkman Thanks for the education, Ben. _/a grateful financial market pleb. 😀🧡
@BenWerkman Great tweet. 🚀🚀BTC🔥🔥😎. I’ve got plenty of 🍿
@BenWerkman Perhaps this has been answered and I missed it but why doesn’t GBTC just simply decrease their expense for the fund? If BlackRock can operate at a lower expense why can’t they?