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Grayscale wants to launch a spinoff of its spot Bitcoin exchange-traded fund, GBTC, according to a regulatory filing on Tuesday.
The asset manager has asked the Securities and Exchange Commission for permission to launch Bitcoin Mini Trust ($BTC), a low-fee version of GBTC, which currently has over $28 billion in assets under management. Shares of the new ETF would be distributed among shareholders of the original product.
“Grayscale knows that its current investors are not thrilled with the fees that they’re being charged, and so this is a way to throw them a bone,” Eric Balchunas, Bloomberg’s senior ETF analyst, told Fortune.
It’s happening! @Grayscale just filed to launch the “Grayscale Bitcoin Mini Trust” expecting this to have a competitive fee. It will trade under the ticker $BTC and will come from a spinoff from $GBTC. This means $GBTC holders will get some % of holdings spun off into $BTC. pic.twitter.com/JAKMcKfn5o
— James Seyffart (@JSeyff) March 12, 2024
Nate Geraci, president of the ETF Store, told Fortune over email: “This is a smart move that allows Grayscale to continue positioning GBTC as a preferred trading vehicle, while targeting longer-term investors with the mini trust.”
Existing GBTC investors would automatically be opted in for it, and a portion of their shares would be subjected to lower fees without them needing to pay capital gains taxes to transfer into the new fund.
Capital gains taxes are the predominant reason current GBTC shareholders have refrained from withdrawing their money, tying them to a fund with 1.5% fees, higher than competitors that are charging 0.25% or less. VanEck yesterday announced it was temporarily cutting fees to 0%.
While the fees for the new Grayscale product haven’t been disclosed, they’ll be competitive with similar products, someone close to the matter told Fortune.
“While this may curb their outflows a little, it gives them a shot at inflows,” Balchunas said. But entering the race with a low-fee product this late could prove tricky. “It’s still going to be difficult for the Bitcoin Mini Trust to get new flows, but I think they have much more of a fighting chance now—especially for their network of clients.”
“I honestly think they should have done this earlier,” added Balchunas.
Competitive fees may cement the new trust’s role as a “contender” in the ETF battle, Terrence Yang, managing director of Swan Bitcoin, told Fortune, but “this is BlackRock and Fidelity’s race to lose—they’re breaking away from the others.”
So they keep milking the Brokie funds but let normies roll into a cheaper variant, not a bad idea
Grayscale Investments Intends to Seed the Trust Through a Spin-Off Resulting From Contributions by Gbtc – Filing
Grayscale Investments: Mini Trust Intends to List Shares on NYSE… https://t.co/qLnrPzBx70
— Fofty Pawlow (@FoftyPawlow) March 12, 2024
So, why doesn’t Grayscale just lower GBTC’s fees?
“Of course they could, but then they’d lose $100 million in revenue, minimum, by the end of the year. That’s a tough sell,” VettaFi financial futurist Dave Nadig told Fortune.
Money has been pumping into the nine spot Bitcoin ETF funds, roughly $9.6 billion in total, with BlackRock and Fidelity dominating about 80% of the inflows, according to Bloomberg data. However, outflows continue to trickle out of GBTC, amounting to about $10.5 billion.
The products have made it easier for retail investors and IRA holders to gain exposure to Bitcoin without needing to buy it from a crypto exchange or navigate on-chain wallets. Inflows reached a record high last week of $2.24 billion and, as of Monday, collectively some $55 billion in assets under management has been accumulated in barely two months of trading, Bloomberg data shows.
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