Grayscale’s business model that saw it hike fees on its crypto ETF products has proven to be profitable.
Key Notes
- Grayscale is the worst performing Bitcoin ETF per total outflow.
- Despite this, the product has a higher revenue margin than BlackRock.
- Its high fees account for this disparity.
Grayscale Investments, one of the industry’s largest digital asset managers, has faced significant challenges since converting its flagship product, the GBTC into spot ETF.
A staggering drop in Assets Under Management (AUM) at GBTC has been recorded due to aggressive investor capital outflows. Despite this decline, Grayscale continues to generate substantial revenue, largely due to the high fees attached to its ETF products.
These fees, often criticized as the highest in the industry, have allowed Grayscale to generate significant income as investors’ interest wanes.
GBTC ETF Makes More than BlackRock IBIT
According to reports, the firm makes five times more from its GBTC ETF than what BlackRock, the world’s largest asset manager, makes from its iShares Bitcoin Trust (IBIT). This disparity underscores the profitability of Grayscale’s fee structure compared to competitors offering similar Bitcoin-based products.
However, Grayscale must balance its high revenues through fees with dealing with the outflows from its ETF products. While the firm benefits financially from its fee structure, it risks upsetting investors looking for more affordable options in a competitive crypto ETF market.
Recall that Grayscale former CEO Michael Sonnenshein planned to lower fees on GBTC Bitcoin ETF in March. Sonnenshein revealed the company’s plan to reduce its fees on GBTC, attributing it to the market’s evolution and increased demand for the product.
While this has not materialized for GBTC, its mini Bitcoin and Ethereum products offers some of the industry’s lowest fees.
Grayscale’s Q1 2024 Earnings Take Hit amid Outflows
Since transitioning to a spot Bitcoin ETF, GBTC has experienced a notable outflow surpassing $12 billion. Notably, it has seen a record single-day outflow of $643 million, even as competitors such as BlackRock’s IBIT have seen inflows.
The high management fee of 1.5% compared to other Bitcoin ETF providers explains this trend. For instance, VanEck has opted to waive fees on its Bitcoin ETF amidst fierce competition within the market.
Since trading started earlier in January, all the US spot Bitcoin ETFs have registered total net inflows of over $18 billion. However, amid the tightening economic condition in the US, the demand for Bitcoin funds has slowed down considerably. On the other hand, the outflows from the Grayscale Bitcoin ETF have continued. On October 1, GBTC reported over $5 million in net outflows.
In May, Blackrock’s IBIT surpassed Grayscale GBTC as the largest Bitcoin exchange-traded fund. Notably, on May 9, IBIT registered a total cash inflow of about $102.5 million, while GBTC recorded $105.2 million in outflows to register the flipping.
Meanwhile, Grayscale recently launched its XRP Trust. This investment vehicle offers accredited investors direct exposure to XRP, allowing them to invest in the cryptocurrency without needing to handle it directly. Grayscale’s move is expected to boost investor confidence and could be a precursor to further developments in the XRP ecosystem.
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