Michael Sonnenshein, CEO of Grayscale Investments, New York Stock Exchange, April 18, 2022.
Source: New York Stock Exchange
LONDON – The boss of digital asset manager Grayscale, which oversees the $26 billion exchange-traded fund GBTC, said fees on its flagship product will fall over time after outflows hit $12 billion.
Grayscale CEO Michael Sonnenshein said the crypto fund manager expects to lower fees on its Grayscale Bitcoin Trust ETF in the coming months as the emerging crypto ETF market matures.
“I’m pleased to confirm that over time, as this market matures, GBTC fees will come down,” Sonnenshein told CNBC on Monday. The company has previously defended its above-market average fees .
“We’ve seen this in countless other exposures, countless other markets, you name it, typically when products are earlier in their life cycle, when they’re new, those (fees) tend to be higher. And, as these markets mature, these fees tend to fall as these funds grow, and we expect the same for GBTC.”
Since converting to an ETF in early January, GBTC has seen outflows of more than $12 billion, largely due to its higher-than-average fees, according to crypto investment firm CoinShares.
Data from CoinShares shows that GBTC recorded its largest single-day outflow on Monday, with total withdrawals reaching $643 million.
“Of course, we expect there will be outflows,” Sonnenshein told CNBC. “Investors have been looking to take gains from their portfolios, or arbitrage from funds, or people have forced liquidations to unwind some of their positions that went bankrupt.”
Market commentators believe that the bankruptcy of crypto giant FTX played a major role in the GBTC sell-off. Prior to filing for bankruptcy in November 2022, FTX was a major shareholder of GBTC, holding approximately 22 million shares as of October 25.
The FTX bankruptcy estate reportedly sold a majority of its stake in the Grayscale Bitcoin ETF, according to reports from Bloomberg and CoinDesk in January.
“None of this is surprising, right,” Sonnenshin said of the outflow. “What we see is that GBTC continues to trade liquidly at tight spreads and has a very diverse shareholder base. So we think we’re somewhere between inning one and two.”
Sonnenshein added: “We are now at the end of the first inning and pent-up buying demand is expected to be met and pent-up sales demand is expected to be met.”
“Now we’re starting to get into innings two and three, where there are more markets that don’t have access to these products yet.”
The crypto fund manager charges GBTC holders a 1.5% management fee, which is significantly higher than the fees charged by many ETF providers, including BlackRock and Fidelity.
To attract deposits, Vanguard has completely waived fees for investors until March 2025.
Grayscale’s Sonnenshein defended the company’s high fees at the time, telling CNBC that GBTC’s liquidity and track record justified their high fees. He said other ETFs charge lower fees because their products “don’t have a strong track record” and issuers are trying to attract investors through fee incentives.
Sonnenshein said the reason other ETFs have lower fees is because the products “don’t have a track record” and issuers are trying to attract investors with fee incentives. “I think from our perspective, that may sometimes call into question their long-term commitment to the asset class,” he said.
Sonnenshein told CNBC on Monday that “all these new issuers are actually coming into the market to compete with us” and also competing with each other.
Grayscale also hopes to introduce other ways for investors to obtain its Bitcoin ETF at a lower cost, including the “mini” version of its flagship product announced last week – the Grayscale Bitcoin Mini Trust. The new ETF will trade under the “BTC” trading symbol and have fees significantly lower than GBTC.
The new BTC ETF is actually a spin-off from the Grayscale Bitcoin Trust ETF and is seeded with a yet-to-be-disclosed portion of the underlying Bitcoin GBTC shares.
Under this structure, existing holders of GBTC will be able to benefit from lower total mixing fees while maintaining the same Bitcoin exposure covering ownership of GBTC and BTC shares.
Existing GBTC shareholders can also convert to BTC without paying capital gains tax.
The company is currently awaiting SEC approval for its Bitcoin Mini Trust ETF.
Going forward, Sonnenshein hopes investors will turn their attention to the company’s other cryptocurrency investment products, which track the prices of different cryptocurrencies including ethereum and solana.
The company is trying to convert its Grayscale Ethereum Trust into an ETF but is awaiting SEC approval.
