Grayscale’s recent triumph against the Securities and Exchange Commission (SEC) marked a pivotal moment for the crypto industry, as it secured approval for its closed-end trust to transform into a spot exchange-traded fund (ETF). However, the aftermath of this victory has been tumultuous for Grayscale’s trust-turned-fund, GBTC, witnessing outflows exceeding $5.2 billion since the anticipated Jan. 11 approval, according to Bloomberg data.
Understanding the Outflows: Unintended Consequences of Success
GBTC, initiated in 2013 as a closed-end trust fund, held the monopoly as the primary option for trading Bitcoin on the stock market, commanding a premium from investors. However, since February 2021, it faced a stark decline, trading at nearly 50% discount rates by December 2022. Investors, previously confined to the trust, witnessed GBTC’s discount on Bitcoin widen, creating an unusual scenario.
Analysts suggest the outflows can be categorized into three main groups: those seeking lower fees, sales by FTX amid bankruptcy proceedings, and investors who speculated on the SEC approving spot Bitcoin ETFs. The competition among Bitcoin ETFs to offer lower fees is fierce, where GBTC, with a 1.5% fee, stands in stark contrast to competitors maintaining fees below 0.3%.
A third of the outflows are attributed to investors seeking lower fees, particularly those holding GBTC in their IRAs, avoiding capital gains taxes. Simultaneously, FTX’s liquidation of its GBTC holdings as part of bankruptcy proceedings accounts for another portion. The third category includes investors who engaged in “buy the rumor, sell the news” tactics, betting on a Bitcoin ETF approval.
Grayscale’s Response and Market Dominance:
A Grayscale spokeswoman affirmed that GBTC remains committed to providing credible, confident, and regulated exposure to Bitcoin, positioning itself as the backbone of the ETF market. Despite substantial outflows, Grayscale’s market dominance endures, with GBTC holding over $21 billion in assets, representing a significant portion of the total Bitcoin ETF value of approximately $27.2 billion.
Remaining Competitive Amidst Challenges:
While outflows have been substantial, Grayscale’s position remains formidable. The recent slowdown in outflows suggests a potential stabilization, with the daily average decreasing from $530 million to $191 million. Analysts anticipate a shift in dynamics, with the remaining GBTC likely held by non-IRA investors who choose to weather the storm, considering the tax implications of redemption and a potential fee cut in the future.
As Grayscale plays the waiting game, navigating internal challenges and industry shifts, the crypto community watches closely to see how this influential player adapts to the evolving landscape.
