Why is the rate of the spot Bitcoin ETF that Grayscale plans to launch much higher than that of its peers?

Author: Ben Strack, Blockworks; Compiled by: Songxue, Golden Finance

As Grayscale prepares to launch planned Bitcoin ETF, its fees relative to possible U.S. competitors Unusually high, industry observers say the company may soon suffer outflows.

For those who scrolled through Monday’s series of revisions to see the Bitcoin ETF filing, a few things became clear.

First, competition is fierce, asmany fund groups appear prepared to offer similar services at lower rates than some might expect.

Second, the proposed fee for Grayscale Investments’ proposed Bitcoin ETF is much higher. If approved, the Grayscale fund's fee will be 1.5%,the company said in Monday's filing.

At the same time, the fund fee rate proposed by competitor Bitwise is 0.24% (24 basis points), which is lower than any competitor.

BlackRock, VanEck, Franklin Templeton, Fidelity, as well as Ark Invest and 21Shares all plan to keep rates below 40 basis points.

The Securities and Exchange Commission could still veto funds in such plans, as it has done for years. Regulators are expected to rule on a series of spot Bitcoin ETF proposals by Wednesday.

Why Grayscale’s fee rate is an outlier

Grayscale’s process of launching a spot Bitcoin ETF is different from others Companies are a little different. While it seeks to launch a fund that will hold Bitcoin directly, it will do so by converting its existing flagship Bitcoin Trust (GBTC) into an ETF wrapper.

GBTC was launched in 2013 and currently charges an annual fee of 2% and has approximately US$27 billion in assets under management.

Grayscale banned trust fund redemptions years ago. While investors can sell eligible GBTC shares on the secondary market, investors considering this option have had to endure selling their shares at a discount in recent years.

Bryan Armor, director of passive strategy research at Morningstar, noted that the company once again appears to be "taking advantage of investors who don't have an exit strategy."

“Grayscale seems intent on betting that investors will stick with GBTC despite significantly higher fees, whether due to inertia or because long-term investors are stuck with hefty tax bills for switching to ETFs,” Armour said.

Grayscale’s proposed 1.5% fee is more similar to other countries’ spot Bitcoin ETFs than its potential U.S. rivals. For example, Canada’s Purpose Bitcoin ETF charges 1%, while Australia’s Global X 21Shares Bitcoin ETF has an expense ratio of 1.25%.

Even though the planned fees are much higher than those of its potential U.S. rivals, Grayscale is still positioning itself to be different from other companies.

A company spokesperson noted that theGrayscale Bitcoin ETF may appeal to investors looking for a fund with “market-leading liquidity, bid spreads, high trading volumes and a decade-long track record of operational success.” investor.

Dave Nadig, a financial futurist at data firm VettaFi, noted that GBTC’s current 2% fee on approximately $27 billion in assets means the company has earned more than $500 million through these fees . Reducing the rate to 1.5% has slashed that number by 25%, he added.

Dave Nadig pointed out: "I'm not surprised that some people are reluctant to give up this lucrative business."

Industry observers pointed out thatGrayscale may adjust the 1.5% fee in the future . Van Buren Capital partner Scott Johnsson said in Monday’s X post thatthe firm may be “trying to find the sweet spot of reducing asset management declines and maintaining fees.”

GBTC outflow imminent – ​​if approved?

Armor believes that investors should not pay 100 basis points for an ETF that offers the same BTC exposure as a fund they can buy at 0.25%.

“I expect there will be massive outflows once GBTC trades close to [net asset value],” Armor said. “I have always said the worst outcome for Grayscale would be to approve a spot Bitcoin ETF, Because in a competitive market with open redemptions, they are unlikely to generate the same level of fee income."

GBTC's stock price was trading at a discount to its net asset value on Friday, according to YCharts.com The rate is 5.6%. Grayscale said this discount will essentially disappear when trust funds are allowed to convert into ETFs.

Nadig said he expectsinvestors to move away from GBTC and into other funds over time.

He added: "At those rate levels, it's a one-way door into [asset management]."