Why does Grayscale set the management fee of GBTC to 1.5%?
The main reason is that Grayscale is short of money, very short of money, and very short of money in the short term. Setting it to 1.5% can maximize Grayscale's short-term benefits.
How is the 1.5% management fee collected? Many people don't even know this when they analyze it, and just make random analysis. It is probably because they only have experience in buying funds in China but not in buying and selling US stocks. The management fee is an annual fee, which is then converted to a daily fee. (When GBTC was a trust, the annual fee was 2%, collected monthly, but it was changed when applying for ETF).
Previously, GBTC as a trust was not redeemable. Grayscale charged a monthly management fee, which was actually physical BTC. A portion of BTC was extracted from GBTC every month and then belonged to Grayscale. This was a sure win.
Why is Grayscale so committed to transforming GBTC from a non-redeemable trust to a redeemable ETF? And why is it spending a lot of legal fees to sue the SEC? Is it for the benefit of the cryptocurrency community?
There are two reasons for this question. The main reason is that Grayscale itself holds a large amount of GBTC, and GBTC is greatly discounted in the market, so Grayscale itself cannot sell its shares. There are two reasons why it cannot sell. One is that GBTC has no liquidity, and the second is that according to the Securities Act of 1933, it cannot be sold on the open market and cannot sell enough shares.
Another reason is that Grayscale and its subsidiaries are facing a large number of lawsuits from institutions such as FTX and Gemini due to the non-redeemability of GBTC and the outrageous operations during the premium period before March 21. If they cannot be converted into ETFs, they will have to lose money.
Therefore, due to these two reasons, in order to avoid bankruptcy and the forced dissolution of GBTC and compensation of a large sum of money, Grayscale had to sue the SEC and convert the trust into an ETF. This was not for the sake of the crypto market.
In summary: 1. Grayscale itself is facing bankruptcy and lacks money, so it has to make money from its GBTC shares. 2. Other institutions holding GBTC are forcing Grayscale to do so through legal proceedings.
By the way, let me add that where did Grayscale’s GBTC come from? Some of it was purchased by Grayscale itself with BTC during the early stages of GBTC’s establishment. After all, the management fees are kept for itself and not for outsiders. Another large portion was from other institutions that used GBTC as collateral and pledged it to their subsidiaries when their companies collapsed, such as 3AC.
Knowing why Grayscale chose a non-redeemable trust with a 2% management fee and instead opted for a redeemable ETF with a 1.5% management fee, you can understand why Grayscale set a management fee of 1.5%.
Grayscale still wants to collect as much management fees as possible, but it has no choice but to maximize management fee income in the short term. Remember? Management fees are charged on a daily basis.
Then you might think, aren't those who keep GBTC fools? Well, there are three types of people, and even if they are not fools, they will tolerate the high management fee of GBTC. 1) People for tax reasons. Chinese people do not have to pay taxes to the IRS when they trade US stocks, but Americans do. According to US tax law, the tax rate for short-term buying and selling is different from the tax rate for holding for more than a certain period of time. Most of the discount arbitrage of GBTC was carried out over 23 years, so some people need to eat more for a period of time to avoid taxes. 2) Assets that are frozen due to court lawsuits, such as Gemini and Genesis' more than 60 million GBTC. 3) Large institutions have requirements for management scale and liquidity. If you choose an ETF, you cannot choose one below a certain scale, such as less than 7.5 billion (for example).
If you simply want to arbitrage the GBTC discount without considering taxes, anyone who doesn’t sell on the first day is a fool.
As for the past performance of GBTC, does it have anything to do with Grayscale? Besides, the mechanisms of these spot ETFs are similar, and there will be basically no difference in performance. Saying that the price is 1.5% based on past performance is just a lie.
