Grayscale Submits Application for ‘Mini’ Bitcoin Spot ETF to Address GBTC Decline

Grayscale, a cryptocurrency management firm, has devised a strategy to halt its swiftly increasing asset outflow – which includes the introduction of a new Bitcoin spot ETF.

The Grayscale Bitcoin Mini Trust (BTC) – as submitted to the SEC on Tuesday – is intended to serve as a “spinoff” of the original Grayscale Bitcoin Trust (GBTC), acquiring a portion of the assets from the original fund.

What Is The Grayscale Bitcoin Mini Trust?

To offset losses for current GBTC shareholders, investors will receive shares of equivalent value in the new fund. Similar to GBTC, the mini-trust will support its shares with Bitcoin, offering direct spot exposure to the current digital currency.

“The Spin-Off is not anticipated to be a taxable event for GBTC or its shareholders,” the filing indicated.

Given that both funds operate in a similar manner, questions arise regarding the rationale for introducing a new fund. Although Grayscale’s complete intentions remain ambiguous, analysts speculate that it may relate to the management fee of the new fund, which has yet to be revealed.

“I’m fairly certain this will be a non-taxable event for a portion of those shares to transition into a more affordable and competitive product,” remarked Bloomberg ETF analyst James Seyffart, noting that he is “anticipating this to feature a competitive fee.”

His colleague, Eric Balchunas, shared a similar perspective.

“Grayscale is launching BTC, a mini low-fee version of GBTC that investors in GBTC will be able to access without a tax impact (I believe) through a special dividend,” he posted on X.

Grayscale’s Significant Outflows

Currently, Grayscale’s Bitcoin Trust (GBTC) imposes a 1.5% annual management fee on its holders.

Although this is a reduction from the previous 2% fee charged before its transformation into an ETF, it remains considerably higher than the fees charged by competitors. For instance, BlackRock charges only a 0.25% fee, while VanEck has recently eliminated its fee entirely until next year.

This difference has provided new investors with little incentive to choose GBTC over other funds. Consequently, the fund has experienced a loss of 229,000 BTC since competitors entered the market and has not recorded a single day of net inflows. It has experienced the second-highest outflows of any ETF in the past 15 years and currently holds less BTC than its nine competitors combined, despite a significant incumbent advantage.

Want to challenge your mind for a moment? $GBTC experienced a total of $7.45 billion in inflows prior to the ETF conversion and has faced $11 billion in outflows since the conversion.

$3.55 billion more has exited than entered.

It still retains approximately $28 billion in assets https://t.co/xcrjZOlmpb pic.twitter.com/gxkp4XBjJd

— James Seyffart (@JSeyff) March 12, 2024

The only motivation for existing investors to remain with GBTC is the potential realization of a taxable event if they choose to exit – a situation Balchunas believes may be frustrating for the fund’s holders. However, if Grayscale were to reduce its GBTC fee outright, it would forfeit a significant portion of the revenue that supports the crypto empire of its parent company, Digital Currency Group (DCG).

“This approach allows them to retain some of that lucrative 1.5% assets while providing a small concession to investors with this offering,” Balchunas clarified. “Additionally, BTC then provides something competitive for their sales team to present when discussing with advisors who likely view a 1.5% fee as an immediate dealbreaker.”

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