By
Chimamanda U. Martha
April 26th, 2024
Grayscale’s Sonnenshein justified high fees due to GBTC’s liquidity and track record. He explained that other ETFs may offer lower fees because they lack a proven track record, and issuers are enticing investors with fee incentives.
In the latest announcement on Monday, March 18, Grayscale CEO Michael Sonnenshein stated that the company is working on the path of reducing fees for its Grayscale Bitcoin Trust ETF as the crypto ETF market evolves.
As outflows from the $26 billion GBTC reached $12 billion, Sonnenshein noted that fee reductions would be implemented gradually over time. In an interview with CNBC, Sonneshein said:
“I’ll happily confirm that, over time, as this market matures, the fees on GBTC will come down. We have seen this in countless other exposures, countless other markets, you name it, where typically when products are earlier in their lifecycle, when they’re new to be introduced, these [fees] tend to be higher. And, as those markets mature, and as those funds grow, those fees tend to come down, and we expect the same to be true of GBTC.”
On Monday, March 18, Grayscale’s GBTC Bitcoin ETF recorded its biggest single-day outflow of $643 million. This is equivalent to 10,000 Bitcoins flowing out from GBTC’s holdings.
Since its ETF conversion, $GBTC has experienced a loss of 250,600 Bitcoin. This represents a decrease in total Bitcoin holdings from 620,000 BTC to 368,000 BTC, marking a substantial reduction of 40%.
Sonnenshein explained that investors have been looking to realize profits from their portfolios, or arbitrageurs exiting the fund, or individuals unwinding positions that were impacted by bankruptcies and forced liquidations.
Industry analysts noted that the insolvency of crypto behemoth FTX has contributed significantly to the decline in GBTC’s value. FTX was a substantial holder of GBTC until it declared bankruptcy in November 2022. The company possessed approximately 22 million shares as of October 25. Reportedly, the FTX bankruptcy estate has sold off the majority of its shares in Grayscale’s Bitcoin ETF.
GBTC Addressing High Fee Concerns
Grayscale imposes a management fee of 1.5% for GBTC holders, which is notably higher compared to fees charged by many ETF providers such as BlackRock and Fidelity. Conversely, Vanguard has opted to waive fees for investors entirely until March 2025 in an effort to attract deposits.
Sonnenshein from Grayscale defended the firm’s higher fees, citing GBTC’s liquidity and track record as justification. He explained that other ETFs may offer lower fees because they lack a proven track record, and issuers are enticing investors with fee incentives. “I think from our standpoint, it may at times call into question their long-term commitment to the asset class,” he said.
Grayscale is aiming to offer investors more cost-effective options for accessing its Bitcoin ETF, including the introduction of a “mini” version of its flagship product, the Grayscale Bitcoin Mini Trust. This new ETF, trading under the ticker “BTC”, will feature a significantly lower fee compared to GBTC.
The BTC ETF will essentially stem from the Grayscale Bitcoin Trust ETF and will be initially funded with a portion of the Bitcoin underlying GBTC shares.
Looking ahead, Sonnenshein encourages investors to explore the company’s other cryptocurrency investment products, which track the prices of various cryptocurrencies such as Ether and Solana. Furthermore, Grayscale is actively pursuing the conversion of its Grayscale Ethereum Trust into an ETF, although this initiative is pending approval from the SEC.
