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Grayscale CEO Says Fees on Its Bitcoin ETF Will Decline Over Time After Outflows Hit $12 Billion

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Michael Sonnenshein, CEO of Grayscale Investments on the NYSE, April 18, 2022.

Source: NYSE

LONDON — The head of digital asset management firm Grayscale, which runs the $26 billion GBTC exchange-traded fund, said fees for its flagship product would decline over time after its exits reached 12 billion dollars.

Grayscale CEO Michael Sonnenshein said the crypto fund manager expects to reduce fees for its Grayscale Bitcoin Trust ETF in the coming months as the nascent crypto ETF market matures.

“I will happily confirm that over time, as this market matures, the fees on GBTC will decrease,” Sonnenshein told CNBC in an interview Monday. The company had previously defended its higher-than-market-average prices.

“We’ve seen this in countless other exhibitions, in countless other markets, etc., where typically when products are earlier in their life cycle, when they’re new to being introduced, these (fees) And as these markets mature, and as these funds grow, these fees tend to go down, and we expect the same to happen for GBTC. »

GBTC has seen outflows of more than $12 billion since it was converted to an ETF in early January, according to data from crypto investment firm CoinShares, largely due to its higher-than-average fees.

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Data from CoinShares shows that GBTC recorded its largest daily outflow on Monday, with withdrawals totaling $643 million.

“Of course we expected capital outflows,” Sonnenshein told CNBC. “Investors either wanted to realize gains on their portfolios, get arbitrageurs exiting the fund, or unwind positions that were part of bankruptcies through forced liquidation.”

Market commentators claim that the bankruptcy of crypto giant FTX played a significant role in the GBTC sell-off. FTX was one of the largest holders of GBTC before filing for bankruptcy in November 2022, holding approximately 22 million shares as of October 25.

FTX’s bankruptcy estate reportedly sold off the majority of its shares in Grayscale’s Bitcoin ETF, according to a January report from Bloomberg and CoinDesk.

“None of this was a surprise, right,” Sonnenshein said, speaking of the capital outflows. “What we’ve seen is that GBTC continues to trade liquidly with tight spreads and within a very diverse shareholder base. So we kind of think we’re in between the former and the latter second round.”

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“We’re kind of at the end of that first inning now, where the pent-up demand to buy has hopefully been met, and the pent-up demand to sell has also hopefully been met,” added Sonnenshein.

“And now we’re kind of starting to head into that second and third innings, where there’s so much more of the market that still doesn’t have access to these products.”

The crypto fund manager charges a 1.5% management fee to GBTC holders, which is significantly higher than the fees charged by many ETF providers, including BlackRock and Fidelity.

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VanEck has waived investor fees entirely through March 2025 in a bid to attract deposits.

Sonnenshein in grayscale defended the firm’s high fees at the time, telling CNBC that they were justified by GBTC’s liquidity and track record. He said the reason other ETFs have lower fees is because their products “don’t have a track record” and issuers are trying to attract investors with incentive fees.

Sonnenshein said the reason other ETFs have lower fees is because the products “don’t have a track record” and issuers try to attract investors with incentive fees. “I think from our perspective it can sometimes call into question their long-term commitment to this asset class,” he said.

Sonnenshein told CNBC on Monday that “all these new issuers have really come into the market to compete with us” and are also competing with each other.

Grayscale also wants to introduce other ways to offer investors cheaper ways to access its Bitcoin ETF, including a “mini” version of its flagship product – the Grayscale Bitcoin Mini Trust, announced last week. The new ETF is expected to trade under the ticker “BTC” and have significantly lower fees than GBTC.

The new BTC ETF would effectively come from the Grayscale Bitcoin Trust ETF and feature a still undisclosed portion of the Bitcoin stocks underlying GBTC.

Under this structure, existing GBTC holders could benefit from lower total mixed fees while maintaining the same exposure to bitcoin, covering ownership of GBTC and BTC shares.

Existing GBTC shareholders could also convert to BTC without paying capital gains tax.

The company is currently awaiting approval from the United States Securities and Exchange Commission for its Bitcoin Mini Trust ETF.

Going forward, Sonnenshein wants investors to turn their attention to the company’s other crypto investment products, which track the prices of different cryptocurrencies, including ether and solana.

The company is attempting to convert its Grayscale Ethereum Trust into an ETF, but is awaiting SEC approval.

Grayscale CEO: Pent-up Demand for Bitcoin ETFs Has Driven Huge Inflows and Rising Prices

Correction: This story has been edited to reflect that VanEck has waived fees on its Bitcoin ETF through March 2025. An earlier version misstated the company’s name.

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