Bittime - Grayscale's Bitcoin ETF has lost more than $14 billion and hasn't lowered its industry-high fees, but former Wall Street analyst Jim Bianco gave two reasons why.
Grayscale may keep high fees for its Bitcoin spot-traded funds to keep “trapped” holders from cashing out while betting that Bitcoin prices will continue to surge upwards, according to a market analyst.
Grayscale's Approach to Bitcoin Fees and Speculation
Grayscale Bitcoin Trust (GBTC) has experienced daily outflows since its launch on January 11 — totaling more than $14 billion as of March 25.
Many people, including Bianco Research founder and former Wall Street analyst Jim Bianco, have pointed to GBTC fees as a "problem."
In a post on X on March 25, he speculated at least half of the GBTC outflows were those switching to lower-cost ETFs.
The Grayscale ETF charges a management fee of 1.5% per year, five times the 0.30% average of other spot Bitcoin ETFs.
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Bianco cited two reasons why Grayscale hasn't lowered those fees.
First, it could be a bet that GBTC holders won't leave because asset managers "analyzed their holders' tax bills, and concluded they were 'stuck' because it was too expensive to leave until they needed the money."
GBTC managed nearly $24.7 billion in assets as of March 25, according to YCharts data.
Bianco also believes that Grayscale's toughness on fees could be due to optimism that Bitcoin prices "will soar well above $100K in the next year or two."
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"Under this scenario, [Grayscale] is betting that the price of BTC will rise enough to increase their (chargeable) assets to "offset" most or all of their outflows," Bianco wrote.
If BTC goes down, he added, “then this strategy could be a disaster” because GBTC sales could increase “and holders of ‘trapped’ tax bills find these bills reduced enough that they can walk away and never return to GBTC again.”
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Bloomberg ETF analyst Eric Balchunas posted in response to Bianco's theory that "there may never be any inflows into GBTC at all."
"The theory is there will be a few more days of large outflows and then a slow to eternal flow," added Balchunas. "If the price of BTC goes up, then they will be fine in terms of income."
Why Sue the SEC Only to Lose Out?
The United States spot Bitcoin ETF only came about because Grayscale won a lawsuit against the Securities and Exchange Commission last year that forced the agency to review Grayscale's bid to convert GBTC into an ETF.
"Why did GBTC spend all the time and effort suing the SEC to allow it to convert to an ETF and just manage it like this (so it will slowly lose money)?" Bianco asked.
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Conclusion
In response, Balchunas speculated that Grayscale probably knew that even if GBTC would “lose money to the last investor,” the ETF hype would “boost BTC enough” to offset those losses, and assets under management would remain stable.
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Grayscale has also long said it would convert to GBTC, so it "should move on" and not lower fees because "it's HARD to destroy 80% of your revenue stream in one shot," Balchunas added.
Grayscale likely “overlooked how competitive the U.S. ETF market is,” Balchunas said, and perhaps didn't expect the vicious fee wars issuers waged in an effort to gain market share.
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