Last week represented a major inflection point for Grayscale, manager of the world’s largest bitcoin exchange-traded fund (ETF), the eponymous Grayscale Bitcoin Trust (GBTC).
After 10 years of regulatory wrangling with the US securities watchdog, Grayscale was finally permitted to up-list GBTC into an ETF.
The Securities and Exchange Commission (SEC) gave the nod to 11 ETFs in total, but it was Grayscale’s approval that garnered the most attention.
Not only is GBTC the largest bitcoin fund globally (with over $24 billion in assets under management, it’s not even close), but Grayscale was also the vanguard of the legal actions against the SEC that eventually led to last week’s sweeping approvals.
Yet GBTC has also been met with a degree of criticism for its excessive management fees, currently set at 1.5% annually.
In comparison, BlackRock’s iShares Bitcoin Trust (IBIT) charges less than 0.2%.
When asked how Grayscale can justify more than seven times its nearest competitor, chief legal officer Craig Salm pointed to Grayscale’s expertise in the cryptocurrency industry.
“I think factors like the asset manager's crypto specialisation are crucial,” said Salm in an interview with Proactive. “Grayscale has been doing this longer than anybody else.”
He continued: “We've navigated many of the more idiosyncratic events that have occurred in the crypto space. But I don't know if every other traditional asset manager can handle things like dealing with memory pools in the bitcoin blockchain, or forks and airdrops.
“These are events that don't typically occur in traditional finance. Thus, this becomes another important variable for any investor when deciding on which bitcoin ETF to use if they want to invest in Bitcoin.”
Salm did concede that price is “certainly something important to investors and will be one variable they consider when deciding which bitcoin ETF to use if they want to make a bitcoin investment”.
“However, other important features exist, such as assets under management, trading volume, liquidity, spreads… All of these contribute to the total cost of ownership of an ETF. So, it's not just based on the management fee.”
While this is true, customers appear willing to shop around, reflected in the amount of GBTC outflows tallied since it went live on the New York Stock Exchange - nearly $1.2 billion at the time of writing.
“There's no denying the GBTC Gouge is big and ugly (def gonna need stitches),” as Bloomberg’s Eric Balchunas put it.
“We did see a bit of outflows over the first few days, about $580 million or so,” Salm agreed, though “it's still early days and looking forward to seeing how GBTC performs, but we cannot be happier with the performance we've seen in the last couple of days”.
He noted that GBTC volumes are far outweighing any other ETFs on the market, making for “penny-sized spreads to buy and sell the product”.
No lies detected - GBTC saw more than $5 billion in trading volumes over three days, more than double IBIT’s.
As for those fees, Grayscale has not yet confirmed a reduction, but with competition ramping up, there’s every chance of a bitcoin ETF price war on the horizon.