Grayscale Loses the Crown

New King. The Grayscale Bitcoin Trust (GBTC) was initially created in 2013 and launched as the largest spot BTC ETF by assets under management thanks to a decade-long head start that allowed it to accumulate nearly $30B in BTC. Yesterday, GBTC’s reign came to an end. Which ETF has taken its place, and what conclusions can we draw from this development?

GBTC had been the preeminent route for TradFi participants to access BTC exposure throughout much of Bitcoin's existence, but fell into decline after the long-awaited launch of spot BTC ETFs, which finally enabled redemptions in mid-January.

Although GBTC trading activity dominated spot BTC ETF volumes for multiple weeks post-conversion, the instrument was plagued with outflows during this period, consistently bleeding hundreds of millions of dollars in BTC daily.

By the end of April, these persistent outflows had largely subsided, and during the month of May, GBTC has managed to record 6 separate days of inflows!

While this recent period of relatively flat flows has undoubtedly been a comforting reprieve for Grayscale, it proved inadequate in allowing GBTC to maintain market share lead… On March 28, BlackRock’s IBIT iShares Bitcoin Trust – the golden child among recently launched spot ETFs – finally surpassed GBTC in terms of AUM!

Despite the enormous lead GBTC held over newborn products coming into 2024, this flippening has been inevitable, empowered by the presence of GBTC’s comparably outrageous fee structure and the increasing institutionalization of BTC.

Grayscale opted to maximize the value of GBTC’s fee generational capabilities, rationalizing that many holders will not sell due to tax implications and other factors. Accordingly, it has adopted an extremely aggressive 1.5% management fee, which is six times higher than those of alternative spot BTC ETFs!

While Grayscale plans on launching a low-fee alternative mini BTC ETF in the near future, the desire to maximize revenues from GBTC has simply left the product uncompetitive against existing offerings.

Further, although Grayscale has clout among the crypto natives, the group is relatively unknown among TradFi participants and does not possess the same degree of client connections as trillion dollar asset managers like BlackRock and Fidelity.

External capital flocking to crypto is being attracted to instruments backed by established names, and it is only rational they would avoid GBTC in favor of new instruments like IBIT, given the former’s exorbitant management fees and sub-par liquidity in comparison to the leading alternatives.