On 25 November 2023, Nikolaos Panigirtzoglou, head of cross-asset market strategy at JPMorgan, shared his insights on LinkedIn regarding the Binance settlement and its broader implications for the cryptocurrency ecosystem, particularly in the context of regulation and market dynamics
Panigirtzoglou began by emphasizing the significance of the Binance settlement in reinforcing a shift towards regulated crypto entities and instruments. He noted that this trend has been a primary objective of U.S. authorities following the FTX collapse. Panigirtzoglou posits that such a shift is beneficial for the crypto ecosystem, as increased regulation is likely to attract traditional market participants and investors.
He highlighted the involvement of major traditional asset managers like Blackrock and Fidelity in the anticipated approval of physical or spot Bitcoin ETFs by the SEC. According to Panigirtzoglou, this involvement aligns with the thesis that regulation is making the crypto space more appealing to conventional investors.
A key topic in Panigirtzoglou’s post was the potential impact of the Grayscale Bitcoin Trust’s conversion to a spot Bitcoin ETF. He discussed the speculation that a significant amount of GBTC shares, bought at deep discounts to NAV (Net Asset Value) in the secondary market, might lead to profit-taking once GBTC converts to an ETF and the discount to NAV is arbitraged away.
Panigirtzoglou estimated that around $2.7 billion could exit GBTC. He analyzed the potential market impact, stating that if this amount completely exits the Bitcoin space, it would likely exert severe downward pressure on Bitcoin prices. However, if most of this sum shifts into other Bitcoin instruments, such as newly created spot Bitcoin ETFs post-SEC approval, the negative market impact would be more modest.
Despite the potential for a more modest impact, Panigirtzoglou believes the balance of risks for Bitcoin prices is skewed to the downside. He reasons that some portion of the $2.7 billion is likely to exit the Bitcoin space entirely.
Panigirtzoglou also touched upon the fee structure of GBTC, which is currently at 200 basis points (bp). He suggested that if the fee is not significantly reduced post-ETF conversion to an estimated equilibrium fee range of around 50-80bp, significantly more money than the aforementioned $2.7 billion could exit GBTC.