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Bitcoin ETFs to Go Extinct? Grayscale CEO Says “Most Likely”

Last Updated January 19, 2024 12:01 PM
Teuta Franjkovic
Last Updated January 19, 2024 12:01 PM

Key Takeaways

  • Michael Sonnenshein expressed doubt about the long-term viability of most of the 11 newly approved Bitcoin ETFs.
  • The Grayscale CEO defended Grayscale Bitcoin Trust ETF’s higher fee, in contrast to the fees of most other approved ETFs.
  • He justified the fee by the fact that Grayscale’s status is the largest Bitcoin fund with a decade-long track record.

Grayscale Investments CEO Michael Sonnenshein recently expressed skepticism  about the survival of all 11 recently approved Bitcoin ETFs.

The Grayscale Bitcoin Trust ETF, recognized as the world’s largest with over $25 billion in assets, stands out as having relatively high fees.

Warnings of ‘Darwinian’ ETF Market, Predicting Only a Few Survivors

This skepticism arises amid heightened scrutiny of management fees. This follows the United States Security and Exchange Commission (SEC) recently approving 11 spot Bitcoin ETFs. Since then, firms from BlackRock to Fidelity’s fee structures have been under the spotlight.

While some ETF issuers initially offered 0% fees before slightly increasing them, most have settled on fees ranging from 0.2% to 0.4%.

However, the Grayscale Bitcoin Trust ETF stands apart with a 1.5% fee. Sonnenshein justifies this higher fee by pointing to the fund’s status as the largest Bitcoin fund, its successful 10-year operational track record, and its diverse investor base.

Speaking at the World Economic Forum in Davos, Sonnenshein said :

“Investors are weighing heavily things like liquidity and track record and who the actual issuer is behind the product. Grayscale is a crypto specialist. And it has really paved the way for a lot of these products coming through.”

Sonnenshein suggested  the lower fees of other ETFs are due to their lack of a proven track record. He implied issuers were using fee incentives to attract investors.

He raised concerns  about their long-term commitment to the asset class. Sonnenshein believes only two or three spot Bitcoin ETFs might achieve significant assets under management, predicting that the rest could be withdrawn from the market.

He said : “I don’t think the marketplace will sustain all 11 spot products we currently see.”

Grayscale Bitcoin Trust Loses $1.2 Billion as Other Spot ETFs Soar

Since converting to an ETF, the Grayscale fund has experienced  approximately $1.2 billion in outflows.

In contrast, other spot Bitcoin ETFs have collectively garnered about $1.9 billion in net inflows. Notably, VanEck’s spot Bitcoin ETF, with the second-highest management fee among the new ETFs at 0.25%, costs significantly less than GBTC.

BlackRock’s iShares spot Bitcoin ETF, which has attracted the most inflows since its recent launch, initially charges a 0.12% fee. This will increase to 0.25% after a year for accounts holding less than $5 billion in assets.

ETF fees
Credit: Bloomberg News, Bloomberg Intelligence, SEC

Grayscale Files for Covered Call ETF as GBTC Continues to Decline

The day after the SEC approved spot Bitcoin ETFs, Grayscale Investments filed for a covered call ETF . According to the N-1A form submitted  last Thursday, the company aims to “provide and deliver current income while also offering participation in the price return of Grayscale Bitcoin Trust.”

Sonnenshein said :

“Being able to offer a covered call strategy allows investors to have passive long GBTC exposure but also earn some additional income.”

Despite suggestions that Grayscale’s covered call filing might indicate expectations of reduced volatility in crypto markets, Sonnenshein clarified that the primary driver was investor interest in being passively invested in the asset class, not volatility concerns.

Amid these developments, shares of GBTC  continued to fall, dropping about 4.35% to $36.29 on Thursday. Concurrently, Bitcoin’s value also declined , falling approximately 2.28% to $41,439

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