Grayscale was among the companies that pressured the Securities and Exchange Commission to receive approval for spot Bitcoin ETFs. However, the Grayscale Bitcoin ETF has been struggling. It recently saw an outflow of over $27 million, which compounds to over $450 million in June. Here’s an analysis of their continuing outflows and why they are losing money.
Grayscale Massive Outflows on Bitcoin ETF
Since the approval of the Bitcoin ETFs, Grayscale has been experiencing massive outflows, causing concerns among many analysts. On June 28th, the GBTC ETFs recorded a massive outflow of over $27 million despite the general ETF market having a net inflow of $73 million. Furthermore, other ETFs like IBIT recorded a net outflow of $82 million and ARK $43 million. However, Fidelity and Grayscale were the only ones with massive losses.
This is not the first time GBTC will be having massive losses in their ETF. As reported by Coingape, there was a $30 million outflow as of June 26th. Moreover, within June, Grayscale saw losses of $150 million in one week and $450 million in 30 days.
Another analysis from Cointelegraph provides another angle on the massive losses. Their report states that the outflows on GBTC surpass the inflows. Since the launch of the ETF on January 11th, the outflows total over $14 billion.
Why is Grayscale Seeing Outflows: Effect of Fees on Bitcoin ETF
Grayscale was one of the pioneers of the Bitcoin ETF pursuit. After the SEC approved U.S.-listed ETFs tracking Bitcoin, the $27 billion Grayscale Bitcoin Trust converted into an ETF. However, since becoming an ETF, it’s always been bad news on bad news. The major cause of the massive outflows in their ETFs is their fee.
The Grayscale Bitcoin ETF charges an annual fee of 1.5%, which is much higher than other funds. The fee is approximately five times that of the 0.30% average of the other spot Bitcoin ETFs. This is why many investors are moving their funds to other ETFs instead of continuing with Grayscale.
Why the 1.5% Fee? Any Plans from Grayscale?
In March 2024, Bianco Research founder and former Wall Street analyst Jim Bianco analyzed the reasons why Grayscale has the 1.5% fees.
Apparently, Grayscale concludes that GBTC holders are “stuck” in the fund and might not leave until they need the money. “$GBTC analyzed its holders’ tax bill (from buying years earlier when it was a closed-end fund) and concluded they are “stuck” as it is too costly to leave until they need the money. So, $GBTC can charge this huge fee, betting they will not leave,” Bianco said.
Furthermore, Grayscale is also betting on the price of Bitcoin to increase by over $100k within a year or two of Bitcoin ETF approval. Bianco explained further that “Under this scenario, they are betting the price of BTC will rise enough to increase their assets (for which they charge a fee) to “offset” most or all their outflows.
Conclusion
It has become a concern within the crypto industry about why Grayscale Bitcoin ETF is experiencing massive outflows instead of inflows. From the period of starting off as an ETF, it has incurred an outflow of over $14 billion. Nevertheless, the reason behind this is the fees they charge. Grayscale charges around 1.5%, which is very different from the average fee of 0.30% for other Bitcoin ETF providers. Moreover, $GBTC’s total assets were down by $6.3 billion, or 22%, as of March 25th. Subsequently, Grayscale will have to start doing something different if they want to recover from the current narrative.
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