Grayscale Bitcoin ETF Bleeding Continues: Experts Warn of Persistent Outflows

The crypto asset management giant Grayscale has been grappling with a persistent outflow from its spot Bitcoin ETF. Despite a noticeable slowdown, data suggests there is room for further significant withdrawals.

Recent Bianco Research and Farside research shows that a massive $7 billion has flowed out of Grayscale’s Bitcoin investment product since it converted to a Bitcoin ETF in mid-February. While the outflow pace has slowed somewhat, experts like Nate Geraci of ETF Store still expect more investors to pull their money out despite the easing of redemptions. The situation remains concerning for this once-popular Bitcoin fund.

GBTC has $7bil outflows in past 5 weeks…

What a chart.

Outflows clearly slowing.

Interested to see what happens moving forward.

Play for Grayscale IMO is to launch “mini-GBTC” (spot bitcoin ETF at significantly lower fee). SPDR did this w/ GLD & GLDM.

via @biancoresearch pic.twitter.com/NrZnqzUiAi

— Nate Geraci (@NateGeraci) February 19, 2024

A deeper dive into the numbers reveals that January bore witness to the most substantial departure, with a whopping $5.64 billion leaving GBTC’s coffers by the month’s end. Though relatively calmer, February has still recorded outflows totaling $1.37 billion.

Geraci, a veteran in the exchange-traded fund (ETF) realm, expressed grave concerns that Grayscale’s flagship product may not have seen the last asset bleed. “They can have assets chopped by 90% and still make more than all of the other issuers combined,” he cautioned.

Grayscale Bitcoin Trust Outflows: By former Wall Street analyst

Former Wall Street analyst and Bianco Research founder Jim Bianco said that investors adjusting their portfolios was responsible for many withdrawals. He drew attention to the growing trend of recently introduced spot Bitcoin ETFs with far lower fees—between 0 and 12 basis points (bps)—than Grayscale’s rather hefty 150 bps.

5/6

Why is Grayscale getting outflows?

Two reasons:

1. The 10 other funds have cut their fees to 0 to 12 bps. Grayscale charges 150 bps.

2. As this chart shows, when Grayscale was a closed-end fund, it traded at a substantial discount to the BTC price (bottom panel).

On… pic.twitter.com/Jv4ytCNCS8

— Jim Bianco (@biancoresearch) February 19, 2024

Bianco illuminated the significant 44% discount of GBTC to Bitcoin’s spot price, a key factor in outflows. “A lot of money flows into ‘cheap’ BTC,” he reasoned, adding that the conversion to an ETF status enabled Grayscale to close this “arbitrage-type” trade, which could have contributed to the outflows.

Speculation abounds: Grayscale may introduce a “mini-GBTC” product with significantly lower fees to counter withdrawal trends. However, the potential for escalating outflows looms, especially after a judge recently granted bankrupt crypto firm Genesis the green light to offload part of its $1.6 billion investments across Grayscale’s Bitcoin, Ethereum, and Ethereum Classic Trusts.

The crypto asset management landscape evolves, with all eyes fixed on Grayscale’s next strategic moves. A key concern is whether they can effectively curtail the ongoing exodus of assets from their flagship Bitcoin offering.

Related Reading | Bitcoin ETFs See Massive $403M Inflow Amid Price Surge