As per Bernstein research, there is the “headroom for a compliant ETF to grow its share as a bitcoin on-ramp solving the pain of custody”.
In its latest research report on Monday, June 26, private wealth management giant Bernstein stated that Grayscale‘s dominant position in the crypto market could be under threat following BlackRock‘s recent filing of the spot Bitcoin ETF with the US SEC earlier this month.
Currently, Grayscale is the world’s largest crypto asset manager running a $19 billion BTC Trust (GBTC). Bernstein stated that Grayscale earns a total of around $380 million in annualized fees “despite the product being inefficient, illiquid, and has traded at a significant discount over the last 28 months”.
Grayscale has been willing to convert its GBTC product into a spot Bitcoin ETF. The asset manager has also dragged the US SEC to court over its refusal to approve this product.
While the US SEC has given a go-ahead to the Bitcoin futures ETFs in the past, it has denied more than a dozen applications for the spot Bitcoin ETFs citing a lack of measures in ensuring customer protection. Commenting on the spot ETF market, Bernstein analysts led by Gautam Chhugani wrote:
“If BlackRock and others manage to break through the spot ETF market, it would offer the most convenient, compliant and acceptable product for both retail and institutional players to gain bitcoin exposure.”
SEC Can Accommodate a Spot Bitcoin ETF
Earlier this month, BlackRock filed for the spot Bitcoin ETF with the US SEC under the iShares unit of fund management. Soon after BalckRock made the move, there have been a flood of applications hitting the market with asset managers such as Invesco and Wisdom Tree looking to reapply for a Bitcoin ETF product.
Bernstein stated that the Grayscale Bitcoin Trust (GBTC) constitutes only 3% of the total market cap of Bitcoin. It further added that there is the “headroom for a compliant ETF to grow its share as a bitcoin on-ramp solving the pain of custody”.
The report suggests that the current annual fee for GBTC is 2%, which leaves room for aligning the pricing with more traditional asset ETFs. These ETFs are considerably cheaper, often below 0.5%.
James Seyffart of Bloomberg Intelligence also made a similar argument earlier this month. Seyffart noted that “if BlackRock wins approval for their ETF, which isn’t guaranteed, it may decrease Grayscale’s valuation because Grayscale would be forced to lower fees sooner than might have been assumed. On top of that, if GBTC converts to an ETF then the fund will be subject to potential outflows”.