Grayscale’s decision to maintain high fees for its Bitcoin exchange-traded fund (ETF) may be a strategic move to prevent holders from cashing out while betting on the continued rise in Bitcoin’s price, according to a market analyst. Since its launch on January 11, the Grayscale Bitcoin Trust (GBTC) has experienced daily outflows totaling over $14 billion as of March 25. Many attribute these outflows to GBTC’s high fees, which are five times higher than the average fees of other spot Bitcoin ETFs. Bianco Research founder Jim Bianco speculates that Grayscale may be confident that GBTC holders will not leave, as they have analyzed the holders’ tax bill and concluded that it is too costly to exit until they actually need the money. Grayscale manages assets totaling nearly $24.7 billion as of March 25, and the firm’s firmness on fees may also be driven by optimism that Bitcoin’s price will surpass $100,000 in the next year or two. However, if Bitcoin’s price falls, the strategy could prove disastrous as GBTC selling could increase, leading “stuck” holders to cash out and never return. Grayscale’s ETF came about as a result of winning a lawsuit against the Securities and Exchange Commission (SEC) last year, which forced the SEC to review its bid to convert GBTC to an ETF. Despite this legal victory, it is unclear why Grayscale would sue the SEC only to manage GBTC in a way that causes it to slowly lose value. It is speculated that Grayscale may have known that even if GBTC were to lose all its investors, the hype around ETFs would boost Bitcoin’s price enough to offset the losses and keep its assets under management stable. Grayscale’s decision to maintain high fees may also be attributed to its reluctance to give up a significant portion of its revenue stream. The firm may have underestimated the competitiveness of the US ETF market and the cutthroat fee competition among issuers. Another possible reason for Grayscale’s fee strategy is its attempt to help its subsidiary, bankrupt crypto lender Genesis, by allowing it to exit positions at net asset value.
Two possible explanations for GBTC persisting with high fees despite losing billions