Grayscale is facing a significant and prolonged outflow of assets due to higher fees, leading investors to shift to competing ETFs. The CEO of Grayscale, Michael Sonnenshein, assures investors that fees may be reduced as the market matures, and claims that the Fund is starting to reach a level of equilibrium.
The outflow of assets from Grayscale’s Bitcoin Trust (GBTC) Fund has reached a record-breaking 72 days, which is in sharp contrast to the nine other approved spot Bitcoin ETFs. Although the outflow slowed down on February 26, with a record-low of $22.4 million compared to the $640 million in January, it has been steadily declining since the conversion was approved.
Since January 11, GBTC has experienced 31 consecutive days of outflows totaling $7.47 billion. Industry experts attribute this continuous outflow to the bankruptcy filings of several crypto firms in 2022 and 2023, which held GBTC shares on their balance sheets.
According to Sonnenshein, the current situation is due to a shift in investors’ behavior, as they sell off their GBTC shares to reinvest in other Bitcoin ETFs. This is driven by the lower fees offered by competitors like BlackRock and Fidelity. Initially, GBTC had a fee of 1.5%, which was higher than the average fee of 0.2% charged by competitors.
Grayscale executives have defended their fees, arguing that their legacy and management of trust justify the charges. They believe that investors consider factors like liquidity and track record, as well as the reputation of the issuer. Grayscale, being a crypto specialist, has paved the way for many of these products, raising questions about other ETFs’ long-term commitment to the asset class.
In order to stay competitive, Sonnenshein has stated that Grayscale may lower fees and attract more assets as the market matures. Despite his earlier prediction that only two to three spot Bitcoin ETFs would achieve critical mass in terms of assets under management, the current market situation suggests otherwise.
Data from Arkham Intelligence estimates that GBTC currently holds over 323,209K BTC, which is a significant decrease from the 618,000 BTC held at the beginning of the year. Sonnenshein remains optimistic, believing that the Fund has started to reach a level of equilibrium as some of the anticipated outflows, such as the selling due to bankruptcies and switch trades, are largely behind them.
The future of ETFs remains uncertain as Bitcoin enters a bearish phase, with the price currently trading at $64,428. However, the recent buying momentum following the Bitcoin halving may provide enough support to keep the price above $60K.
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