April 21, 2024

Grayscale’s Bitcoin Trust (GBTC) has shed over $14 billion of its total value. Nevertheless, it still retains an industry-high fee structure despite the losses.

These Theories Explain the Reason Behind High GBTC Fees

Ex-Wall Street analyst Jim Bianco shares two possible reasons why the fee structure remains unchanged.

Analyst Jim Bianco Sees GBTC’s Fee Structure as a Problem 

According to Bianco Research Founder Jim Bianco, GBTC’s fee is a problem and has caused daily outflows from the asset since its launch on January 11. These outflows are now over $14 billion in value as of March 25. 

Also, he speculated that approximately half of the GBTC outflows were moving to the lower-fee ETFs that were considerably more affordable. 

These Theories Explain the Reason Behind High GBTC Fees

Grayscale ETF charges its customers a 1.5% management fee per year, five times higher than the 0.30% average rate of other spot Bitcoin ETFs.

These Theories Explain the Reason Behind High GBTC Fees

According to Bianco, GBTC began its first trading day with $28 billion in assets converted to spot BTC ETF, making it the largest ETF launch in history. However, it has recorded 51 consecutive days of outflows since its conversion on January 11.

These Theories Explain the Reason Behind High GBTC Fees

Industry experts believe GBTC’s high fee structure is the main reason behind this outflow. Despite this, Grayscale remains adamant on its 1.5% management charges. 

Bianco’s first theory for Grayscale’s adamancy includes a bet that GBTC holders will not leave since leaving might be too costly due to huge taxes. Therefore, they are stuck with the company for now. 

The second theory is that Grayscale’s insistence on the high fees could be from optimism that Bitcoin’s price will rise well above $100,000 in a year or two. So, Grayscale could be betting that the price of BTC will rise so high and increase the value of their holdings, thereby offsetting most of their outflows.     

However, if Bitcoin falls, this strategy could backfire and increase the selling pressure on GBTC. Nonetheless, Bianco notes that an inflow into GBTC will eventually occur at some point despite the high fees.

These Theories Explain the Reason Behind High GBTC Fees

The analyst says the outflows will continue until GBTC is held only by dead people or those who forgot they owned the ETF shares.   

Hopefully, the sales will flow into lower-fee Spot ETFs, which, according to Bianco, will not force a decline in Bitcoin’s price. However, if investors sell to leave the Bitcoin ETF space entirely, it can cause a decline in the value of BTC.   

Bloomberg Analyst Agrees with Jim Bianco’s Theories

Reacting to Bianco’s post on X, Bloomberg analyst Eric Balchunas noted that there may never be an inflow recorded for GBTC due to high fees. According to the analyst, much of the Grayscale (GBTC’s) assets under management (AUM) are mirage assets and their investors’ tax hostages that cannot freely leave.

These Theories Explain the Reason Behind High GBTC Fees

Jim Bianco also affirmed Balchunas’ stance but questioned if Grayscale spent all the time and effort to sue the SEC to enable it to convert to an ETF only to allow it to bleed out slowly.

These Theories Explain the Reason Behind High GBTC Fees

In response to this question, Eric Balchunas noted that Grayscale announced their goal was to convert to an ETF, so they had to follow through. However, he believes they probably underestimated how brutally competitive the US ETF market is. 

He also concurred with the theory that Grayscale hoped the ETF hype would pump Bitcoin high enough to offset the losses.   


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