BTC: Bitcoin's Problematic DAT Setup (Rating Downgrade)

Summary Grayscale Bitcoin Mini Trust ETF offers the lowest expense ratio among top spot Bitcoin ETFs, making it an attractive option for easy, liquid BTC ￰0￱ has meaningfully grown assets under management since 2024, but recent capital outflows from spot Bitcoin ETFs signal rising market caution after the October 10th liquidation ￰1￱ of mNAV in Bitcoin DATs is limiting new share issuance and could prompt asset sales, adding further downside risk for BTC and related ￰2￱ deteriorating technicals and capital flows, patience is warranted before increasing Bitcoin exposure, though a full exit from BTC is not recommended. A short time ago, I provided my technical analyst's view of Bitcoin ( BTC-USD ) for Seeking Alpha through an article covering the Volatility Shares 2x Bitcoin Strategy ETF ( BITX ).

For those of you who value key levels of support and resistance, I'd encourage you to check out that piece after reading this ￰3￱ the benefit of this article, we'll be instead focusing on the capital flow story for Bitcoin through coverage of the Grayscale Bitcoin Mini Trust ETF ( BTC ). In this update, we'll look at spot ETF flows as well as the current DAT setup that I see as potentially ￰4￱ Mini Trust ETF As far as simple and easy Bitcoin exposure goes, it's difficult to argue with longing for Grayscale's mini ￰5￱ fund has done a reasonably nice job of stabilizing Grayscale's fee flight problem last year, having grown AUM by 37% year-to-date, while the sister fund has continued to see some pressure on ￰6￱ by YCharts As of article submission, Grayscale's mini trust holdings denominated in BTC are slightly above 48k coins: Grayscale Bitcoin Mini Trust BTC Holdings (BitcoinTreasuries) The trust has been one of the few US-listed spot ETFs in the market that has been able to meaningfully grow holdings since the beginning of the ￰7￱ the iShares Bitcoin ETF ( IBIT ) continues to dominate the market and gobble up supply, BTC has grown through a very simple low-fee offering compared to peers: Fund Name Expense Ratio AUM Grayscale Bitcoin Mini Trust ETF 0.15% $4.89B Bitwise Bitcoin ETF ( BITB ) 0.20% $4.12B ARK 21Shares Bitcoin ETF ( ARKB ) 0.21% $4.21B Grayscale Bitcoin Trust ETF ( GBTC ) 1.50% $17.24B iShares Bitcoin Trust ETF 0.25% $80.47B Fidelity Wise Origin Bitcoin ETF ( FBTC ) 0.25% $20.44B).

Rather than make this a Bitcoin ￰8￱ thing, I have long believed that both assets are useful in a dollar debasement trade and should be considered as fiat-destruction ￰9￱ said, I see BTC more as a raw speculative asset than I do ￰10￱ Daily ETF Flows (Analyst's Chart, Farside Data) Prior to the October 10th liquidation event, the capital flow story for Bitcoin had been absolutely phenomenal in what many believed would be 'Uptober.' Through October 9th, the Uptober idea was looking quite good as data from Farside tracked over $5 billion in positive net flows for US spot ￰11￱ should go without saying, but that was an absolutely massive start to the ￰12￱ changed on October 10th following a bearish cascade that liquidated over $19 billion in notional value in a single ￰13￱ that event, roughly $1.6 billion came out of spot ETFs through the remainder of ￰14￱ has seen $650 million in negative net flows through Thursday the 6th.

Essentially, over $2.2 billion has come back out of these ETFs since the liquidation even on October ￰15￱ it now isn't just the spot ETF holders who are raising fiat liquidity; even Bitcoin DATs may begin putting pressure on Bitcoin's ￰16￱ trading at a considerable discount to mNAV, Sequans Communications S. A. ( SQNS ) recently sold down 30% of the company's BTC holdings in a capital management move to buy back ￰17￱ is not the only company that is trading at a discount to its BTC stack; a quick glance at Bitcoin Treasuries shows 3 of the top 4 Bitcoin DATs now trading at a slight discount to basic mNAV: Company Bitcoin Value Market Cap Basic mNAV Strategy ( MSTR ) $65m $66m 1.01 MARA Holdings ( MARA ) $5.4m $5.3m 0.98 XXI ((CEP)) $4.4m $4.2m 0.95 Metaplanet ( MTPLF ) $3.1m $3m 0.97): the key difference between Bitcoin DATs and PoS DATs is the ability to passively ￰18￱ ( ETH-USD ) DATs like SharpLink can grow their holdings without raising capital at all provided they stake their coins or provide them as liquidity in protocols like Aave ( AAVE-USD ).

Bitcoin DATs can't natively stake and must either grow holdings through lending - which introduces risk - or continue to raise capital through debt and/or stock ￰19￱ this significant difference, I view ETH or SOL DATs trading at mNAV discounts as safer arbitrage plays than BTC ￰20￱ elephant in the room here is that the lower these mNAV discounts go, the greater the incentive the DAT managers have to sell the Bitcoin, buy back shares, and capture that arbitrage ￰21￱ be fair, the same goes for ETH DATs, but ETH is still a productive asset that I don't think the market fully appreciates in a world with increased RWA ￰22￱ Takeaways Putting all of this together, Bitcoin's setup appears to be deteriorating.

I'm of the view that we still haven't seen all of the fallout from the October 10th liquidation event. I believe the $2.2 billion net outflows from spot ETFs are an indication that fear has entered the ￰23￱ while buying blood in the streets has worked well for both Bitcoin and stocks over these last two years, I'm seeing additional signals in the market that are ￰24￱ DAT mNAV compression is becoming a problem and limiting the bid on BTC through new share ￰25￱ mNAV compression below one could actually trigger a move to sell BTC and buy back either debt or common ￰26￱ I'll reiterate again that Bitcoin's technicals are not ideal, which by itself could put pressure on the coin and proxies like Grayscale's mini ￰27￱ I certainly wouldn't advise selling out of Bitcoin entirely, I do think it's prudent to be patient from here.