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Grayscale Bitcoin Trust ETF (GBTC) Losing Appeal Due to Rising Fees?

2 mins
Updated by Ryan James
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In Brief

  • Grayscale Bitcoin Trust (GBTC) sees a decline in reserves by around 12,000 Bitcoins, prompting speculation of investors exiting due to high fees.
  • GBTC's high fees of 1.5% are being scrutinized as competitors like BlackRock's iShares Bitcoin Trust charge significantly lower fees of up to 0.25%.
  • Despite high fees, GBTC offers superior liquidity compared to other ETFs, reducing slippage and making trading activities more cost-efficient.
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Grayscale Bitcoin Reserves have declined by around 12,000 Bitcoins (BTC), worth approximately $511.2 million based on current market prices. Are investors exiting Grayscale Bitcoin Trust (GBTC) due to high fees?

Grayscale Bitcoin Trust (GBTC) provided institutional investors with easy Bitcoin access. However, after the approval of spot Bitcoin exchange-traded funds (ETFs), investors have other alternatives with lower fees.

More GBTC Redemption in the Upcoming Period?

The screenshot below shows that since the Bitcoin ETFs started trading, GBTC’s Bitcoin reserves have continuously declined. On January 11, the company had over 599,532.60 BTC in reserves. But on January 16, the reserves declined by 12,000 BTC to 587,532.60 BTC.

Read more: What Is a Bitcoin ETF?

Grayscale Bitcoin Reserves
Grayscale Bitcoin Reserves. Source: CryptoQuant

GBTC imposes fees as high as 1.5%. In contrast, competitors like BlackRock’s iShares Bitcoin Trust charge fees of up to 0.25%, which is considerably lower than GBTC. As a result, some community members believe that investors might switch to other Bitcoin ETFs that offer lower fees.

“Expect plenty of redemptions (resulting in some sell pressure) that will be recycled back into other ETFs in the coming day/s due to the fee differential,” said Bitcoin analyst Dylan LeClair.

During February 2023, the discounts to net asset value (NAV) were around 47%. Now, the GBTC discounts to NAV have narrowed down to 1.18%. This could be another reason, pushing investors to redeem their shares and book profits.

GBTC Discounts to NAV
GBTC Discounts to NAV. Source: YCharts

However, GBTC offers better liquidity compared to other ETFs. Due to high liquidity, the slippage reduces, making trading activities cost-efficient.

Read more: Top 7 Crypto Exchanges With the Lowest Spreads in 2024

“If traders are in and out of GBTC in a matter of minutes, hours, days, or even weeks, the 1.5% fee will be negligible to them. That’s less than half of one basis point per day. Traders would much rather pay 0.42 basis points per day than pay a wide bid/ask spread to enter or exit a trade in an illiquid instrument,” explained an X (Twitter) user Rip VanWinkle.

Hence, the company might enjoy charging high fees until a competitor provides better liquidity.

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Harsh Notariya
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