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Analyst Slams Grayscale ETF Fees Amid Ongoing Exodus of Capital: “The Biggest Strategic Error in Crypto History”

Last Updated January 22, 2024 3:04 PM
James Morales
Last Updated January 22, 2024 3:04 PM

Key Takeaways

  • Since Grayscale’s Bitcoin fund (GBTC) was converted into an ETF, the firm has sold thousands of BTC to fund redemptions.
  • According to Bitcoin analyst Chris Terry, Grayscale’s 1.5% fee model is driving investors away from its ETF.
  • If investors continue to abandon GBTC, the fund could soon be completely drained, Terry warned.

In the first week of trading on US securities exchanges, spot Bitcoin Exchange Traded Funds bought up a net total of 10,600 BTC. However, that number would have been much higher were it not for significant outflows from Grayscale’s Bitcoin fund (GBTC).

Amid a deluge of GBTC outflows, some analysts have blamed the ETF’s comparatively high management fees, arguing that an exodus of investors is natural when rival offerings are so much cheaper.

Bitcoin Analyst Blames “Greedy” Grayscale Fees For ETF Outflows

At 1.5%, GBTC’s sponsor fee is the most expensive out of the 11 spot Bitcoin ETFs approved by the Securities and Exchange Commission (SEC) earlier this month. In contrast, the cheapest ETF on offer from Bitwise charges a management fee of just 0.2%.

Given this difference, long-term ETF investors could generate significant savings by switching from GBTC to a lower-priced alternative. For example, assuming an annual return of 7%, a $50,000 investment in Bitwise’s ETF would be worth $96,534 after 10 years, while the same investment in GBTC would be worth just $85,407. 

 

Lambasting the uncompetitive pricing on X, Bitcoin analyst Chris Terry said Grayscale’s “greedy” decision to keep fees at 1.5% would be remembered as “the biggest strategic error in crypto history.” He even predicted that GBTC could end up fully liquidated, a dramatic prospect for a fund that had nearly a $30 billion headstart over its rivals. 

Selling Pressure From GBTC Outflows Could Impact BTC Price

According to Terry, GBTC redemptions could flood the market with thousands of previously locked-up Bitcoins, generating an additional $25 billion of selling pressure over the next few weeks.

That view is shared by Atlascap Invest, which recently predicted  that GBTC outflows will negatively impact the cryptocurrency’s price in the next 1-2 months.

On the other hand, responding to Terry’s bearish outlook, Galaxo CEO Mike Novogratz offered a more optimistic forecast.

ETF Optimism Remains High Despite Negative Short-Term Outlook

Although he also anticipates investors abandoning GBTC, Novogratz added the caveat that “most will switch into other ETFs.” Accordingly, he reasoned that “indigestion” stemming from GBTC outflows will eventually subside, with the price of Bitcoin ultimately benefiting from net inflows to other funds.

For his part, Terry doesn’t strictly disagree with Novogratz, but reminded  him that “you have to sell before you can buy.” All things said and done, the 2 analysts both expect Bitcoin to bounce back from any selloff triggered by GBTC outflows. 

For now, the prospect of Grayscale offloading $25 billion worth of BTC seems daunting. But with pundits anticipating the new ETFs attracting hundreds of billions of dollars in the years ahead, the bigger picture remains bullish.

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