Grayscale’s planned fee for a Bitcoin ETF is high in comparison to US competitors. Segment observers believe the company could experience outflows.
A couple of things were clear to those who sifted through the flurry Monday amendments in order to find bitcoin ETF application.
The competition for fund fees is fierce. Many groups are offering lower rates than expected.
The fee intended for Grayscale Investments’ proposed bitcoin ETF, on the other hand, is significantly higher. According to the Grayscale filing on Monday, it would charge a fee of 1.5% if its fund is approved.
Bitwise’s proposed fund was priced at just 0.24%, or 24 basis points, which is lower than the other competitors.
BlackRock VanEck Franklin Templeton Fidelity Ark Invest 21Shares and VanEck plotted fee levels below 40 basis points.
As it has in the past, the Securities and Exchange Commission may still reject such funds. The Securities and Exchange Commission is likely to make its decision by Wednesday on the vast majority of bitcoin ETFs.
Grayscale’s price is outlier
Grayscale has a slightly different approach to launching a bitcoin ETF. It wants to launch a bitcoin ETF that will hold the cryptocurrency directly. However, to do this it must convert its flagship Bitcoin Trust into an ETF.
GBTC was launched in 2013, with a 2% annual fee. It manages approximately $27 Billion in assets.
Grayscale banned redemptions from the trust many years ago. Although investors are able to sell GBTC eligible shares on the second market, they would need to be willing to accept a price that is below their net asset value.
Bryan Armour is a Morningstar director for passive strategy research. He told Blockworks that the company again appears to be in a downward trend. “cashing in on investors without an exit strategy.”
“Grayscale appears to be betting on investors sticking with GBTC despite the significantly higher fees, whether that be due to inertia or long-term investors held hostage by a hefty tax bill should they switch ETFs,” Armour Tell Blockworks.
Grayscale’s proposed 1,5% fee is closer to the spot bitcoin ETFs of other countries. For example, the Purpose Bitcoin ETF charges a 1% charge in Canada, while Global X 21Shares Bitcoin ETF has a 1.25% expense ratio in Australia.
Grayscale is still unique despite its planned fees being far above those of any US-based competition.
Grayscale’s spokesperson said that investors seeking a bitcoin ETF will likely be interested in the Grayscale ETF. “with market-leading liquidity, tight spreads, high trading volumes and a decade-long track record of operational success.”
Grayscale declined to make any comment about the fee.
Dave Nadig is a financial futureist with VettaFi. He noted that GBTC makes more than $500,000,000 from its current 2% fees on assets worth roughly $27 billion. This figure would be reduced by at least 25% if the fee was reduced to just 1.5%, said Dave Nadig, financial futurist with VettaFi.
“I’m not surprised someone doesn’t want to give up that gravy train,” Nadig explains Blockworks.
As industry observers have pointed out, Grayscale might adjust the fee to 1.5% in future. Industry watchers have noted that Grayscale may adjust the 1.5% fee going forward. “trying to find the sweet spot of minimizing [assets under management] declines and maintaining fees,” Scott Johnsson said that in a post on Monday X, Van Buren Capital’s general partner, Scott Johnsson.
GBTC outflows imminent — if approved?
Armour claimed that investors should avoid paying 100 basis points (0.25%) for ETFs with the same BTC-exposure as they could purchase for funds.
“I expect large outflows from GBTC once it trades closer to [net asset value],” Armour is a brand. “I have long said that the worst possible outcome for Grayscale was the approval of a spot bitcoin ETF, because there’s no way they could generate the same level of fee revenue in a competitive market with open redemptions.”
GBTC stocks were trading Friday at a 5,6% discount from its net asset values, according YCharts.com. Grayscale stated that this discount will essentially vanish when the trust becomes an ETF.
Nadig believes that over time, investors will move their money from GBTC into other funds.
Then he added: “At those fee levels, it’s a one way door for [assets under management].”
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