2 Theories Why GBTC Sticks to High Fees Despite Bleeding Billions
Grayscale may be sticking to high fees for its spot Bitcoin (BTC) exchange-traded fund to keep âstuckâ holders from cashing out while betting that Bitcoinâs price will continue to rocket upward, according to one market analyst.
The Grayscale Bitcoin Trust (GBTC) has seen daily outflows since its launch on Jan. 11 â totaling over $14 billion as of March 25.
Many, including Bianco Research founder and former Wall Street analyst Jim Bianco, have pointed to GBTCâs fees as âthe problem.â In a March 25 X post, he speculated at least half of GBTC outflows were those moving to lower-fee ETFs.
Chart showing GBTC net outflows from Jan. 11 up to March 22. Source: Jim Bianco/X
Grayscaleâs ETF charges a 1.5% per year management fee, five times that of the 0.30% average of the other spot Bitcoin ETFs.
Bianco said two possible reasons why Grayscale doesnât drop the fee. Firstly, it could be a bet that GBTC holders wonât leave as the asset manager âanalyzed its holdersâ tax bill [...] And concluded they are âstuckâ as it is too costly to leave until they need the money.â
GBTC wields assets under management of nearly $24.7 billion as of March 25, per YCharts data.
Bianco also believes Grayscaleâs firmness on its fees could result from optimism that Bitcoinâs price âwill moon well over $100k in the next year or two.â
âUnder this scenario, [Grayscale] are betting the price of BTC will rise enough to increase their assets (for which they charge a fee) to âoffsetâ most or all their outflows,â Bianco wrote.
If BTC falls, he added, âthen this strategy could prove disastrousâ as GBTC selling could ramp up âand âstuckâ tax bill holders find these bills shrink enough that they can leave and never return to GBTC again.â
âExpect GBTC to be a constant selling source until itâs held by dead people, those who forgot they owned it, or those âtrappedâ with giant tax bills if they sell it.â
Bloomberg ETF analyst Eric Balchunas posted in response to Biancoâs theory that âthere may never be an inflow to GBTC ever.â
âMy guess is we see a few more big outflow days and then a slow trickle into eternity,â Balchunas added. âIf BTC price goes up [...] Theyâll be just fine revenue-wise.â
Why sue the SEC just to bleed?
United States spot Bitcoin ETFs only came about due to Grayscale winning a lawsuit against the Securities and Exchange Commission last year which forced it to review Grayscaleâs bid to convert GBTC to an ETF.
âWhy did GBTC spend all the time and effort to sue the SEC to allow it to convert to an ETF and only manage it like this (so that it will slowly bleed out)?â Bianco asked.
Answering, Balchunas speculated that Grayscale maybe knew that even if GBTC were to âbleed out every last investor,â the ETF hype would âpump BTC enoughâ to offset the losses, and its assets under management would remain stable.
Related: BlackRockâs ETF could flip GBTC in Bitcoin holdings within 3 weeks
Grayscale had also long said it would convert GBTC, so it âhad to follow throughâ and didnât lower fees as itâs âTOUGH to kill 80% of your revenue stream in one shot,â Balchunas added.
Grayscale likely âunderestimated just how brutally competitiveâ the U.S. ETF market is, Balchunas said, and maybe wasnât expecting the cutthroat fee war issuers started in a bid to gain market share.
Bloomberg ETF analyst James Seyffart postulated another reason could be that Grayscale was acting to try to help bankrupt crypto lender Genesis â both are subsidiaries of crypto conglomerate Digital Currency Group (DCG).
Genesis had over 62 million GBTC shares used to collateralize loans made by Gemini Earn users and the two companies were in a long legal fight over them.
âThere was 100% a selfish interest in just being able to get out of those positions at [net asset value],â said Seyffart.
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