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There are myriad reasons why Grayscale’s Bitcoin spot ETF fund is hemorrhaging cash as investors rush for the door—often to jump into a competing product. Is there an end in sight? And is Grayscale going to be okay?
Following its conversion from an essentially closed-end fund to a spot Bitcoin exchange-traded fund (ETF) back in January, investors have been hitting the redemption button—and fast. So fast that GBTC has experienced the largest outflows of any ETF since March 2009 at over $15 billion to date.
The fund has over 328,012 BTC right now, according to its website. That’s $22.6 billion of the cryptocurrency. GBTC started the year with over 618,000 BTC, meaning it has averaged outflows of 5,092 BTC per day.
If it continues bleeding out at this pace, it will run dry of the “digital gold” by July 8.
There is good news for Grayscale: GBTC is unlikely to sustain that pace, as outflows have slowed down massively. Yesterday, just $75 million left the fund.
“My assumption is that outflows will slow from here,” James Seyffart, ETF Research Analyst at Bloomberg Intelligence, told Decrypt.
To offset the flows, Grayscale has even filed to offer another “mini” Bitcoin ETF with lower fees to compete better. But as it waits for approval, other funds—like BlackRock’s massively popular iShares Bitcoin Trust—are attracting massive inflows. The BlackRock fund has drawn as much as $10 billion in new funds in one day.
“Time is the enemy right now as [the mini Bitcoin ETF] goes through the typical regulatory process,” Todd Sohn, ETF and technical strategist at Strategas Securities, said, adding that “each day flows go to other products so [Grayscale] misses out on that.”
What is leading to the fast outflows? Sohn previously told Decrypt that leftover holders wanting to leave this vehicle for a cheaper ETF were part of the cause.
And in addition to higher fees, this exodus is also driven by collapsed crypto companies that had exposure to Grayscale—such as FTX and Genesis—clawing back cash for customers.
Despite the outflows—which mean BlackRock’s iShares Bitcoin Trust is fast catching up in terms of assets under management—Grayscale’s business model is still likely fine. The fund has $21.7 billion and is still bringing in decent cash flow, according to ETF analysts.
Bloomberg Intelligence ETF analyst Eric Balchunas told Decrypt: “I don’t know exactly how much money [Grayscale] needs to run their business, but an ETF with a billion dollars that charges 1.5% would be a decent little revenue generator—they have 22 times more than that.”
He added that Bitcoin’s rise in price is also only helping the fund manager and subsidizing the outflows. If Bitcoin’s price were to take a massive nosedive, that would hurt the business, he added.
But the price of Bitcoin is up over 40% since the SEC gave the ETFs the green light in January. It also touched an all-time high of nearly $74,000 last month.
“Given the ETFs and the power of that catalyst, and the halving coming up, it looks like Grayscale will be fine for a while in terms of revenue,” Balchunas added.
Seyffart added: “Grayscale will likely be just fine as a business—they still have assets north of $20 billion.”
For its part, Grayscale told Decrypt that there was nothing to worry about and that this scenario was all expected. It's arguably thanks to them that the Bitcoin ETF hype is so hot right now.
In a landmark moment for the crypto industry last year, a judge sided with Grayscale in a lawsuit, agreeing with the firm that Wall Street’s biggest regulator lacked a coherent explanation for saying no to its proposed conversion to an ETF after years of denials.
The ruling basically paved the way for the SEC to give the green light to allow spot Bitcoin ETFs to start trading on American stock exchanges.
Without Grayscale taking the SEC to court, investors may not have the selection of Bitcoin investment products they do now.
“The Grayscale team is incredibly proud of the work we have done to grow GBTC into the world’s largest Bitcoin investment vehicle, blazing a path forward for all spot Bitcoin ETFs to come to market,” a spokesperson told Decrypt.
Edited by Ryan Ozawa.