Michael Sonnenschein, CEO of Grayscale Investments on the New York Stock Exchange, April 18, 2022.
Source: New York Stock Exchange
LONDON — The chief executive of digital asset manager Grayscale, which manages the $26 billion GBTC exchange-traded fund, said fees on its flagship product will fall over time after outflows reach $12 billion.
Grayscale CEO Michael Sonnenschein 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 develops.
“I’m happy to confirm that over time, as this market matures, GBTC fees will go down,” Sonnenschein told CNBC on Monday. Previously, the company justified its costs as being higher than the market average.
“We’ve seen this in countless other markets, countless other markets, whatever you call it, where typically when products are earlier in their life cycle, when they’re new to introduction, these [fees] tend to be higher. And as these markets mature and these funds grow, those fees tend to come down, and we expect the same to be true for GBTC.”
According to crypto investment firm CoinShares, GBTC has seen outflows of more than $12 billion since converting to an ETF in early January, due in no small part to above-average fees.
CoinShares data shows GBTC recorded its largest daily outflow on Monday, with a total withdrawal of $643 million.
“Of course we expected capital outflows,” Sonnenschein told CNBC. “Investors wanted to either profit from their portfolio, or arbitrageurs exiting the fund, or people closing out 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 the majority holder of GBTC before it filed for bankruptcy in November 2022 and owned about 22 million shares as of October 25.
According to January reports from Bloomberg and CoinDesk, the FTX bankruptcy estate has reportedly sold most of its shares in Grayscale’s Bitcoin ETF.
“None of this comes as a surprise,” Sonnenschein said of capital outflows. “We see GBTC continuing to trade liquidly with tight spreads and a very diversified shareholder base. So we think we’re between the first and second innings.”
“We’ve now kind of come to the end of this first half, where the pent-up buying demand has hopefully been satisfied, and the pent-up selling demand has also hopefully been satisfied,” Sonnenschein added.
“And now we’re kind of starting to move into the second and third innings, where a much larger portion of the market doesn’t have access to these products yet.”
The crypto fund manager charges a management fee of 1.5% to GBTC holders, which is significantly higher than the fees charged by many ETF providers, including BlackRock and Fidelity.
VanEck has completely waived fees for investors until March 2025 in an effort to attract deposits.
Grayscale’s Sonnenschein defended the firm’s high fees at the time, telling CNBC 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 reputation” and issuers are trying to lure investors with fee breaks.
Sonnenschein said the reason other ETFs have lower fees is because these products “don’t have a reputation” and issuers are trying to attract investors with fee incentives. “I think from our perspective, sometimes it can call into question their long-term commitment to this asset class,” he said.
Sonnenschein told CNBC on Monday that “all of 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 provide investors with less expensive 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 will trade under the ticker symbol “BTC” and will have significantly lower fees than GBTC.
The new BTC ETF will actually be spun off from the Grayscale Bitcoin Trust ETF and filled with an as-yet undisclosed portion of the Bitcoin underlying GBTC shares.
Under this structure, existing GBTC holders will be able to benefit from a lower overall blended fee while maintaining the same Bitcoin exposure, including holding shares of both GBTC and BTC.
Existing GBTC shareholders will also be able to convert to BTC without paying capital gains tax.
The firm is currently awaiting SEC approval 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 various cryptocurrencies, including ether and solana.
The company is seeking to convert its Grayscale Ethereum Trust into an ETF, but is awaiting SEC approval.
Correction: This story has been corrected to reflect that VanEck has waived fees on its Bitcoin ETF through March 2025. An earlier version misspelled the company name.