In the last two months, the Grayscale Bitcoin Trust (GBTC) has been plagued by a tsunami of outflows since its conversion into a spot Bitcoin ETF.
Now, Grayscale appears to have a new Bitcoin ETF product in the works, which is likely aimed at stemming the said outflows.
The product
According to an S-1 statement filed on Tuesday, the new product will be called the Grayscale Bitcoin Mini Trust and it will also come with the BTC ticker.
Put simply, it is a ‘Spin-Off’ of the significantly larger GBTC fund. This means that some of the underlying Bitcoin stash of the bigger fund would be diverted into the new one.
Moreover, the existing shareholders of GBTC would also receive compensation in the form of BTC shares.
The filing clarified that the spin-off would not be taxable for GBTC itself or its shareholders for that matter.
The filing has not disclosed the portion of the Bitcoin of GBTC that will be diverted into the new fund and it has not made any mention of the fee that will be applicable.
However, analysts have a strong idea of exactly what the company might be planning on doing with the launch of the new fund.
The ETFs
James Seyffart, the ETF analyst for Bloomberg said that it was likely going to be a non-taxable event for a significant amount of the shares to be transferred into a cost-competitive and cheaper product.
On January 11th, GBTC had been converted into a spot Bitcoin ETF and since then, investors have already redeemed shares that are worth almost 229,000 BTC.
In addition, there has not been a single day on which the fund recorded net inflows. In contrast, BlackRock’s ETF product has managed to amass 204,000 BTC, while Fidelity’s ETF has 128,000 BTC.
Moreover, the nine new ETFs are now holding more BTC than the total holdings of Grayscale. Fees are the primary motivator behind the preference of investors when it comes to ETFs.
The fees
BlackRock and other funds are charging about 20 to 30 basis points a year for holding BTC on behalf of clients, while some have chosen to waive their fee entirely for early buyers.
In contrast, Grayscale is still charging 1.5% and this gives no incentive to new buyers to enter its fund over others.
Before it was converted into an ETF, Grayscale had been charging 2% from its buyers for several years. The only reason why people may decide to continue with GBTC is to avoid tax.
If they decide to sell their shares, they would have to pay tax. It would be nothing less than a nightmare for Grayscale if it decides to reduce its fee.
According to Seyffart, the Mini Trust would offer a middle ground, as the company would be able to maintain its revenue and investors would also be able to benefit from reduced fees.
The analyst said that no one would willingly cut their revenue when there are alternatives available and Grayscale is doing exactly that.