The recent approval of spot bitcoin ETFs was meant to usher in an era of mainstream crypto adoption. Instead, it has coincided with more trouble for the embattled digital asset industry. According to private data and sources, bankrupt crypto exchange FTX sold off its entire $1 billion stake in the Grayscale Bitcoin Trust (GBTC) over the past week, accounting for nearly half of over $2 billion in total outflows from the fund so far in 2023.
With bitcoin prices plunging, why did Sam Bankman-Fried’s collapsed empire decide now was the time to dump its GBTC shares? And what does this mean for hopes of a bitcoin ETF-fueled bull run?
The sale of 22 million GBTC shares by FTX’s bankruptcy estate represents the liquidation of one of crypto’s largest positions in the world’s most popular bitcoin fund, now converted to an ETF. As speculators hoped the long-awaited arrival of spot bitcoin ETFs would funnel investment into bitcoin and reverse its bear market, prices have only continued to fall.
Rather than usher in mainstream adoption, bitcoin ETFs have so far only granted Wall Street and sophisticated traders easier access to shorting and dumping on the still-nascent crypto asset class. The mass exodus from GBTC as FTX exits stage left serves as another grim indictment of crypto’s faltering ambitions amid cascading exchange failures and all-time low prices.
For decentralization advocates, moves like FTX’s fly in the face of bitcoin’s ethos and original purpose. Bitcoin was envisioned as “digital gold” - a hedge against fiat and the traditional financial system's pitfalls, not another plaything for Wall Street. That rampant speculation and manipulation can still tank its prices shows how far it has strayed.
The irony is acute: A fund meant to let mainstream investors access bitcoin in their brokerage accounts has seen its biggest inflows yet, but only as whale investors dump or short the asset. This casts further doubt that bitcoin ETF approval marks crypto’s long-awaited coming of age.
If this keeps up, fears of sub-$10k bitcoin may come true sooner than later. But bitcoin has shown its resilience before - after prior speculative manias ended in crashes, true believers picked up the pieces and carried on. The same likely goes for 2023’s crypto winter. Once speculators flee and prices bottom, those building for the long term will remain.