Crypto management firm Grayscale has hatched a plan to stop its rapidly accelerating asset bleed – and it involves launching a brand new Bitcoin spot ETF.
The Grayscale Bitcoin Mini Trust (BTC) – as filed for with the SEC on Tuesday – will be designed as a “spinoff” of the original Grayscale Bitcoin Trust (GBTC), inheriting a portion of the original fund’s assets.
What Is The Grayscale Bitcoin Mini Trust?
To compensate for losses to existing GBTC holders, investors will be given shares of equal weight in the new fund. Just like GBTC, the mini-trust will back its shares with Bitcoin, and provide direct spot exposure to the prevailing digital currency.
“The Spin-Off is not expected to be a taxable event for GBTC or its shareholders,” stated the filing.
With both funds being functionally the same, it raises questions about the reason behind launching a new one. While Grayscale’s full intentions are unclear, analysts believe it has something to do with the new fund’s management fee, which hasn’t been disclosed yet.
“Pretty sure this will be a non-taxable event for a chunk of those shares to get into a cheaper and cost-competitive product,” said Bloomberg ETF analyst James Seyffart, adding that he is “expecting this to have a competitive fee.”
His associate, Eric Balchunas, had the same take.
“Grayscale launching BTC, a mini-me low fee version of GBTC which investors in GBTC will be able to get into without tax hit (I believe) via a special dividend,” he wrote to X.
Grayscale’s Massive Outflows
At present, Grayscale’s Bitcoin Trust (GBTC) charges its holders a 1.5% yearly management fee.
While down from the 2% fee charged before its conversion into an ETF, it is a much heftier cost than that imposed by competitors. BlackRock, for example, only charges a 0.25% fee, while VanEck recently waived its fee entirely until next year.
The discrepancy has left new investors no reason to enter GBTC as opposed to other funds. As such, the fund has lost 229,000 BTC since competitors hit the market, and has not enjoyed a single day of net inflows. It has seen the second most outflows out of any ETF in the last 15 years and now holds less BTC than its nine competitors cumulatively despite a massive incumbent advantage.
Want to break your brain for a second? $GBTC saw a total of $7.45 billion of Inflows pre-ETF conversion and has seen $11 billion in Outflows since conversion.
$3.55 billion more has come out than went in
It still has ~$28 billion in assets https://t.co/xcrjZOlmpb pic.twitter.com/gxkp4XBjJd
— James Seyffart (@JSeyff) March 12, 2024
Existing investors’ only incentive to stay with GBTC is because they may realize a taxable event if they rotate out – which Balchunas believes might be irritating the fund’s holders. Were Grayscale to lower its GBTC fee outright, however, it would lose most of the revenue propping up the crypto empire of its parent company, Digital Currency Group (DCG).
“This way they can keep some of that juicy 1.5% assets while placating a bit investors with this treat,” Balchunas explained. “Also, BTC then gives something competitive for their salespeople to have when talking to advisors who prob find a 1.5% fee an instant dealbreaker.”