Michael Sonnenshein, CEO, Grayscale Investments on the NYSE, April 18, 2022.
Source: NYSE
LONDON — The boss of digital asset management firm Grayscale, which manages the $26 billion exchange-traded fund GBTC, has said that fees on its flagship product will come down over time, after its outflows reached $12 billion.
Grayscale CEO Michael Sonnenshein said that the crypto fund manager expects to bring fees on its Grayscale Bitcoin Trust ETF down in the approaching months, because the nascent crypto ETF market matures.
“I’ll 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 firm previously defended its costlier-than-market-average charges.
“Now we have seen this in countless other exposures, countless other markets, you name it, where typically when products are earlier of their lifecycle, after they’re latest to be introduced, these [fees] are likely to be higher. And, as those markets mature, and as those funds grow, those fees are likely to come down, and we expect the identical to be true of GBTC.”
GBTC has logged outflows of greater than $12 billion because it was converted into an ETF in early January, according to data from crypto investment firm CoinShares, due in no small part to its higher-than-average fees.
CoinShares’ data shows that GBTC recorded its biggest single day by day outflow on Monday, with withdrawals totalling $643 million.
“In fact, we anticipated having outflows,” Sonnenshein told CNBC. “Investors have been wanting to either take gains on their portfolio, or arbitragers coming out of the fund, or people unwinding positions that were a part of bankruptcies through forced liquidation.”
Market commentators argue that the bankruptcy of crypto giant FTX has played a big role within the selloff of GBTC. FTX was a significant holder of GBTC before it filed for insolvency in November 2022, holding about 22 million shares as of Oct. 25.
The FTX bankruptcy estate reportedly offloaded nearly all of its shares in Grayscale’s bitcoin ETF, in keeping with January reporting from Bloomberg and CoinDesk.
“None of that got here as a surprise, right,” Sonnenshein said, speaking concerning the outflows. “What we have seen is GBTC proceed to trade liquidly with tight spreads, and across a really diversified shareholder base. So we sort of think we’re between the primary and the second inning of this.”
“We’re sort of at the tip of that first inning now, where the pent-up demand for purchasing has hopefully been satisfied, the pent up demand for selling has also hopefully been satisfied,” Sonnenshein added.
“And now we’re sort of beginning to move towards that second and third inning, where there’s so far more of the market that also will not be yet accessing these products.”
The crypto fund manager charges a 1.5% management fee for GBTC holders, significantly higher than the charge commanded by many ETF providers, including BlackRock and Fidelity.
VanEck has waived fees for investors entirely until March 2025 in a bid to lure in deposits.
Grayscale’s Sonnenshein defended the firm’s high fees on the time, telling CNBC they were justified by GBTC’s liquidity and track record. He said that the explanation other ETFs have lower fees is that their products “do not have a track record,” and the issuers try to lure investors with fee incentives.
Sonnenshein said the explanation other ETFs have lower fees is that the products “do not have a track record” and the issuers try to draw investors with fee incentives. “I believe from our standpoint, it could at times call into query their long-term commitment to the asset class,” he said.
Sonnenshein told CNBC Monday that “all of those latest issuers really got here into the market to compete with us” and are also rivaling one another.
Grayscale also desires to introduce other ways of giving investors less expensive ways of accessing its bitcoin ETF, including a “mini” version of its flagship product — the Grayscale Bitcoin Mini Trust, announced last week. The brand new ETF is about to trade under the ticker “BTC” and have a materially lower fee than GBTC.
The brand new BTC ETF can be effectively spun out of the Grayscale Bitcoin Trust ETF and seeded with an as-yet undisclosed portion of bitcoin underlying GBTC shares.
Under this structure, existing holders of GBTC would give you the option to learn from a lower total blended fee while maintaining the identical exposure to bitcoin, spanning ownership of shares of each GBTC and BTC.
Existing GBTC shareholders would also give you the option to convert into BTC without paying capital gains tax.
The firm is currently awaiting approval from the U.S. Securities and Exchange Commission for its Bitcoin Mini Trust ETF.
Moving forward, Sonnenshein wants investors to show their attention toward the business’ other crypto investment products, which track prices of various cryptocurrencies including ether and solana.
The corporate is attempting to have its Grayscale Ethereum Trust converted into an ETF, but is awaiting SEC approval.
Correction: This story has been amended to reflect that VanEck waived fees on its bitcoin ETF until March 2025. An earlier version misstated the name of the corporate.