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Grayscale CEO Justifies High Fees for Their GBTC Product despite Net Outflows

In an exclusive interview with Bloomberg Television from Davos on Wednesday, January 17, Grayscale Investments Chief Executive Officer Michael Sonnenshein defended the 1.5% management fee charged for the Grayscale Bitcoin Trust (GBTC). This fee is currently the highest among spot Bitcoin ETFs in the market. Sonnenshein justified the fee, citing the company’s significant size, high liquidity, and proven track record.

“As an investor, when you are choosing amongst these products, fees are a consideration, the asset manager, the issuer behind it are a consideration, but so should be size, liquidity and that track record,” stated Sonnenshein during the interview.

The cryptocurrency market has recently witnessed the launch of nine rival exchange-traded funds, some of which are attracting investors with incentives such as zero fees. However, Grayscale’s Bitcoin Trust has experienced approximately $1.2 billion in outflows since its conversion to an ETF following regulatory approval last week, according to data compiled by Bloomberg Intelligence. In contrast, excluding Grayscale’s Bitcoin Trust, all other spot Bitcoin ETFs have recorded around $1.9 billion in net inflows.

VanEck’s recently launched spot Bitcoin ETF boasts a management fee that stands as the second-highest among the latest ETF offerings. However, it is substantially more cost-effective in comparison to GBTC, with a fee set at 0.25%. On the other hand, BlackRock’s iShares spot Bitcoin ETF, witnessing the highest inflows among all Bitcoin ETFs since its recent market debut, features an initial fee of 0.12%. This introductory fee is likely to increase to 0.25% after 12 months for accounts holding less than $5 billion in assets.

The Grayscale Bitcoin Trust (GBTC) has witnessed notable outflows in the wake of the recent launch of spot Bitcoin ETFs. These ETFs present a more regulated and secure means of holding Bitcoins. Market analysts suggest that the majority of the outflows from GBTC have resulted in substantial inflows into the ETFs.

Bloomberg strategist James Seyffart has observed a significant transfer of funds from Grayscale Bitcoin Trust ($GBTC) to rival ETFs, underscoring the potential significance of this trend. Seyffart estimates a substantial outflow of around $594 million from $GBTC, totaling $1.173 billion in outflows.

Assuming the data is correct it backs up something i wrote about yesterday. A lot of these $GBTC outflows are likely finding a home in competing ETFs https://t.co/Bj8HZAOkXa pic.twitter.com/qcVBnbdnX5

— James Seyffart (@JSeyff) January 17, 2024

One day after the approval of spot Bitcoin ETFs by the US Securities and Exchange Commission, Grayscale Investments filed for a covered call ETF. According to the N-1A form submitted last Thursday, the company aims to offer current income and enable participation in the price return of Grayscale Bitcoin Trust.

The submission of the covered call indicates a potential decrease in volatility within the crypto markets in the future. However, Sonnenshein clarified that the primary driving force behind the covered call filing was investor interest, not volatility. Sonnenshein said:

“Being able to offer a covered call strategy allows investors to have passive long GBTC exposure but also earn some additional income. I don’t think it’s for us so much a measure of volatility but instead that we’ve heard from investors that they want to be passively long of that asset class.”

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Grayscale CEO Justifies High Fees for Their GBTC Product despite Net Outflows