Michael Sonnenshein, CEO, Grayscale Investments on the New York Stock Exchange, April 18, 2022.
Source: New York Stock Exchange
LONDON – The head of digital asset manager Grayscale, which manages the $26 billion GBTC exchange-traded fund, said fees on its main product will decrease over time, after its outflows reached $12 billion.
The cryptocurrency fund manager expects to reduce fees on its Grayscale Bitcoin Trust ETF in the coming months, as the emerging cryptocurrency ETF market matures, Grayscale CEO Michael Sonnenshein said.
“I would happily confirm that over time, as this market matures, the fees on GBTC will come down,” Sonnenshein told CNBC in an interview on Monday. The company has previously defended its fees being more expensive than the market average.
“We've seen this in countless other exposures, countless other markets, you name it, where typically when products are early in their life cycle, when they're new to be launched, these (fees) tend to be higher.” As these markets mature, as these funds grow, these fees tend to decrease, and we expect the same to be true for GBTC.
GBTC has recorded outflows of more than $12 billion since converting to an ETF in early January, according to data from cryptocurrency investment firm CoinShares, due in large part to its higher-than-average fees.
CoinShares data shows that GBTC recorded its largest daily outflow on Monday, with withdrawals totaling $643 million.
“Of course, we expected there would be outflows,” Sonnenshein told CNBC. “Investors were either wanting gains in their portfolios, arbitrageurs exiting the fund, or people unwinding their positions that were part of bankruptcies through forced liquidations.”
Market commentators argue that the bankruptcy of cryptocurrency giant FTX played a significant role in the GBTC sell-off. FTX was the primary holder of GBTC before it filed for bankruptcy in November 2022, owning about 22 million shares as of October 25.
Bankrupt FTX has reportedly offloaded a majority of its shares in Grayscale's Bitcoin ETF, according to January reports from Bloomberg and CoinDesk.
“None of this is surprising, is it,” Sonnenshein said of outflows. “What we've seen is that GBTC continues to trade liquidly with tight spreads, and across a very diverse shareholder base. So we kind of think we're in between the first and second innings of this.”
“We're kind of at the end of that first half now, where hopefully the pent-up demand to buy has been met, and we're also hopeful that the pent-up demand to sell has been met,” Sonnenshein added.
“And now we're starting to kind of move into the second and third halves, where there's a lot of the market that still hasn't gotten to these products.”
The cryptocurrency 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.
VanEck has waived fees for investors entirely until March 2025 in an effort to attract deposits.
Grayscale's Sonnenshein defended the company's high fees at the time, telling CNBC that those fees were justified by GBTC's liquidity and track record. The reason other ETFs have lower fees is that their products “don't have a good track record,” he said, and issuers try to attract investors with fee incentives.
Sonnenshein said the reason other ETFs have lower fees is that the products “don't have a good track record” and issuers are trying to attract investors with fee incentives. “I think from our perspective this may sometimes raise questions about their long-term commitment to the asset class,” he said.
“All of these new exporters have already entered the market to compete with us” and are also competing with each other, Sonnenshein told CNBC on Monday.
Grayscale also wants to introduce other ways to give investors less expensive ways to access a Bitcoin ETF, including a “mini” version of its flagship product – the Grayscale Bitcoin Mini Trust, which was announced last week. The new ETF is set to trade under the symbol “BTC” and with fees materially lower than GBTC.
The new BTC ETF will effectively be taken out of the Grayscale Bitcoin Trust ETF and seeded with a yet-to-be-disclosed portion of GBTC's underlying Bitcoin shares.
Under this structure, existing GBTC holders will be able to benefit from lower total hybrid fees while maintaining the same exposure to Bitcoin, including ownership of both GBTC and BTC shares.
Existing GBTC shareholders will also be able to convert to BTC without paying capital gains tax.
The company is currently awaiting SEC approval for its Bitcoin Mini Trust ETF.
Going forward, Sonnenshein wants investors to turn their attention towards the company's other crypto investment products, which track the prices of various cryptocurrencies including ether and solana.
The company is trying to turn the Grayscale Ethereum Trust into an ETF, but is awaiting SEC approval.
Correction: This story has been modified to reflect VanEck is waiving fees on its Bitcoin ETF through March 2025. An earlier version misspelled the name of the company.
