Bitcoin ETFs are likely to replace the Grayscale Trust as the key driver of the crypto market, analyst says

• Analysts at CrossTower said the fall in the Grayscale Bitcoin Trust share price was bad for bitcoin.
• Canadian bitcoin ETFs were likely to fill the gap in the future as interest grows, they said.
• However, Grayscale remains the key public player, with more than $38 billion under management.

New Canadian bitcoin exchange-traded funds are likely to replace the Grayscale Bitcoin Trust as the major driver of the crypto market, a report from digital asset firm CrossTower has predicted.

The report said the recent fall in the Grayscale Bitcoin Trust's (GBTC) market share price should result in the trust buying less bitcoin as it becomes less attractive to big investors due to a quirk in its structure.

In February, GBTC bought $349 million of bitcoin, down from around $1.5 billion in January and December, according to Glassnode data cited in the report, which was written by former Wells Fargo analyst Martin Gaspar.

However, the new Canadian bitcoin exchange-traded funds - the first of their kind in North America - could become the major force behind the market, CrossTower said, with the Purpose Bitcoin ETF seeing around $730 million of inflows since launching.

"We expect these instruments to replace Grayscale as key drivers of the BTC price going forward," Gaspar wrote.

"Demand for products that have lower management fees than GBTC's 2%, such as these ETFs, will capture a portion of investor demand that… previously went to GBTC."

Grayscale is itself interested in applying to launch an ETF in the US, should the regulators give the green light to such products, its chief executive Michael Sonnenshein told Insider last week.

Shares in the Grayscale Bitcoin Trust have fallen around 10% in the last month, despite the price of bitcoin hitting a record high of close to $62,000.

Nonetheless, Grayscale remains the biggest public owner of bitcoin, according to Bank of America. The bitcoin trust had more than $38 billion of assets under management as of Thursday, and its daily trading volumes are multiples higher than those of Canada's bitcoin ETFs.

Yet the fall in the share price means the Trust is now consistently trading at a discount to the value of its underlying holdings, which CrossTower said was likely to result in GBTC's bitcoin purchases slowing.

This is because GBTC's formerly hefty premium made it an attractive purchase for hedge funds, who could buy a slice of the trust at face value in exchange for bitcoin and then flip it for more on the open market 6 months later.

Now GBTC trades at a discount, bitcoin inflows have slowed, CrossTower said. It wrote: "This is a net negative for bitcoin as Grayscale purchases of BTC were substantial drivers of the BTC price in recent periods, in our view."

Gaspar said: "We expect ETFs to fill the inflow gap as awareness grows and as investors prefer the liquidity of an ETF to trusts."

The Purpose Bitcoin ETF (BTCC) - the first to launch in Canada - saw inflows of around $730 million from mid-February to March 15, taking its total holdings to 11,711 bitcoin, the report said.