Grayscale CEO Says GBTC Bitcoin ETF Fees Will Decline Over Time

LONDON — The head of digital asset management firm Grayscale, which runs the $26 billion GBTC exchange-traded fund, said fees for its flagship product will decline over time after outflows hit $12 billion.

Grayscale CEO Michael Sonnenshein said the crypto fund manager expects to lower fees on its Grayscale Bitcoin Trust ETF in the coming months as the nascent crypto ETF market matures.

“I will be happy to confirm that over time, as this market matures, GBTC fees will decrease,” Sonnenschein told CNBC in an interview on Monday. The firm has previously defended its fees, which are more expensive than the market average.

“We’ve seen this in countless other exposures, countless other markets, whatever, where typically when products are earlier in their lifecycle, when they’re new to launch, those [fees] tend to be higher. And as these markets mature and these funds grow, these fees tend to decrease, and we expect the same to be true for GBTC.”

GBTC has seen more than $12 billion in outflows since it was converted to an ETF in early January, according to data from crypto investment firm CoinShares, largely due to higher-than-average fees.

CoinShares data shows that GBTC recorded its largest single daily flow on Monday, with withdrawals totaling $643 million.

“Of course, we expected outflows,” Sonnenschein told CNBC. “Investors either wanted to take profits on their portfolio, or arbitrageurs exiting the fund, or people who canceled positions that were part of bankruptcies through forced liquidation.”

Market commentators claim that the bankruptcy of crypto giant FTX played a significant role in the GBTC selloff. FTX was a major holder of GBTC before it filed for bankruptcy in November 2022, holding about 22 million shares as of October 25.

FTX’s bankruptcy estate has reportedly unloaded most of its holdings in Grayscale’s Bitcoin ETF, according to reports from January by Bloomberg and CoinDesk.

“None of this was a surprise, was it,” Sonnenschein said, speaking of the outflows. “What we have seen is that GBTC continues to trade liquidly with tight spreads and among a very diversified shareholder base. So we kind of feel like we’re between the first and second innings of that.”

“Now we’re kind of at the end of that first inning where the pent-up buy demand is hopefully satisfied, the pent-up sell demand is hopefully also satisfied,” Sonnenschein added.

“And now we’re kind of starting to move into that second and third innings where there’s so much more of the market that doesn’t have access to these products yet.”

The crypto fund manager charges a 1.5% management fee to GBTC holders, significantly higher than the fee charged by many ETF providers, including BlackRock and Fidelity.

Vanguard waived investor fees entirely until March 2025 in an effort to attract deposits.

Grayscale’s Sonnenshein defended the firm’s high fees at the time, telling CNBC that they were justified by GBTC’s liquidity and results. He said the reason other ETFs have lower fees is because their products “lack track record” and issuers try to lure investors with fee incentives.

Sonnenshein said the reason other ETFs have lower fees is because the products “don’t have a track record” and issuers try to attract investors with fee incentives. “I think from our perspective it can sometimes call into question their long-term commitment to the asset class,” he said.

Sonnenshein told CNBC on Monday that “all these new issuers have really come into the market to compete with us” and also compete with each other.

Grayscale is also looking to introduce other ways to provide investors with cheaper ways to access its Bitcoin ETF, including a “mini” version of its flagship product, the Grayscale Bitcoin Mini Trust, announced last week. The new ETF is set to trade under the ticker “BTC” and have a significantly lower fee than GBTC.

The new BTC ETF will be effectively decoupled from the Grayscale Bitcoin Trust ETF and will be staked with an as-yet-undisclosed portion of GBTC’s underlying bitcoin shares.

Under this structure, existing GBTC holders would be able to benefit from a lower overall blended fee while maintaining the same exposure to Bitcoin, encompassing share ownership of both GBTC and BTC.

Existing GBTC shareholders could also convert to BTC without paying capital gains tax.

The firm is currently awaiting approval from the US Securities and Exchange Commission for its Bitcoin Mini Trust ETF.

Going forward, Sonnenshein wants investors to turn their attention to the business’s other crypto investment products, which track the prices of various cryptocurrencies, including ether and solan.

The company is trying to convert its Grayscale Ethereum Trust into an ETF, but is awaiting SEC approval.