Grayscale Investments’ bitcoin trust has continued to experience net outflows even after switching to an ETF two weeks ago, reducing the asset advantage Grayscale Investments enjoys over competitors.
Analysts believe that it will be some time before Grayscale ETF relinquishes the title as the world’s largest bitcoin ETF.
The Grayscale Bitcoin Trust ETF (GBTC) saw $515 million in net outflows on Tuesday, according to Bloomberg Intelligence data — bringing its net outflow total to nearly $4 billion since converting to an ETF on Jan. 11.
The website for GBTC states that the assets of the company stood at approximately $21 billion as at noon on Wednesday.
BlackRock’s and Fidelity’s bitcoin ETFs have seen their respective asset bases grow to approximately $1.85 and $1.6 billion as a result of daily net inflows.
Many predicted GBTC would lose assets due to its 1.5% charge. When the ETF was converted, the 2.5% fee dropped to 1.5%. The cost is still higher than most other ETFs with expenses ranging between 0.19 and 0.39 percent.
Matteo Greco, research analyst at Fineqia International, said given GBTC’s pre-ETF structure — restricting redemptions to only allow selling shares on the secondary market at a significant discount — he expected the highest outflow activity to occur within the first few weeks of trading as an ETF.
The only way to exceed GBTC’s asset under management is by acquiring more assets. “challenging feat,” He told Blockworks that it is likely the rate of inflows from competitors and outflows from GBTC will slow down.
“Given GBTC’s [public quotation] in 2015, boasting over eight years of competitive advantage, it is anticipated that GBTC will continue to dominate AUM for a considerable duration,” Greco says. “Dethroning GBTC could be a lengthy process.”
In 2013, the fund was officially launched. Grayscale’s legal victory against the Securities and Exchange Commission in August last year was the catalyst that led to the long-awaited US spot Bitcoin ETF approval.
“GBTC has already cemented its place as the go-to bitcoin ETF in the United States for investors who value market-leading liquidity, tight spreads and a decade-long track record of operational success,” Grayscale’s spokesperson spoke to Blockworks.
After eight trading days, the fund had a trading volume of nearly $11 Billion. This is more than half what ETFs with similar trading volumes have.
Grayscale’s John Hoffman, managing director of Sales and Distribution, said previously that large capital markets exchange traded funds are used for a wide range of investment strategies. “we anticipate GBTC’s diverse shareholder base will continue to deploy strategies that impact inflows and outflows.”
Why Investors might stay in GBTC
Bryan Armour is a Morningstar director for passive strategy research. He said that while he expected GBTC assets to continue dropping, there are still some investors unaware of their other options, or unwilling to switch.
Armour said that since many traders are selling GBTC and buying nine other US bitcoin spot ETFs, they can buy GBTC and sell them at a higher price. This is done through a method called pair trading.
“Traders will rely on GBTC less as markets normalize and assets grow in the new nine — especially the biggest ones like iShares and Fidelity,” “He said” “GBTC will no longer be necessary once order flow becomes two-sided in the new ETFs.”
Analysts said that other investors were thinking of capital gains. Some face large taxes if they change to another ETF.
Greco explained that the majority of customers who had purchased GBTC previously would have realized a profit when they sold the shares.
“Consequently, even if these customers were to transfer their funds to a more cost-effective ETF, they would do so with a reduced amount of BTC, making the transfer less favorable,” Greco added.
Armour explained that capital gains are smaller when bitcoins’ price continues to drop, which makes it easier for investors switch. Bitcoin (BTC) was at roughly $39,800 at 3:30 pm ET on Wednesday — down 6.6% in the last week but up 1.3% over the last 24 hours.
“A declining bitcoin is extra bad for GBTC,” Armour is a brand.
A Grayscale spokesperson noted in a Wednesday statement that the firm lowered its fee — “as promised” — upon uplisting GBTC to NYSE Arca. Grayscale declined to comment on whether or not it was considering further reducing its fees.
“I don’t expect them to cut their fee significantly because I think it’s too late to compete on price,” Armour is a brand. “They can probably make more money by charging a high fee and riding out a declining asset base.”
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