How Grayscale’s new Bitcoin Mini Trust will stop the $11bn ‘exodus’ over fees

Grayscale Investments filed for a new Bitcoin mini fund on Tuesday.
ETF analysts say the new product will offset the high fees of Grayscale's existing spot Bitcoin ETF by acting as a dividend for investors of that fund.
Grayscale has seen $11 billion in outflows from its spot Bitcoin ETF as rival spot funds benefit from lower fees.

Grayscale Investments filed for a new Bitcoin fund on Tuesday in an effort to stem the outflows from its Grayscale Bitcoin Trust.

The Grayscale Bitcoin Mini Trust will be a spinoff from Grayscale’s existing spot Bitcoin ETF.

Eric Balchunas, an ETF analyst at Boomberg Intelligence, said Grayscale is launching a second Bitcoin ETF “to stop the exodus” from the Grayscale Bitcoin Trust, which Grayscale converted into an ETF in January.

Grayscale is likely “really hearing it from GBTC investors,” prompting the creation of the new fund to “satiate” those investors, Balchunas said.

GBTC has seen around $11 billion in outflows since the US Securities and Exchange Commission approved several spot Bitcoin ETFs on January 10.

This year’s surge in Bitcoin’s price has kept the fund’s total value stable at around $28 billion. However, Grayscale’s Bitcoin holdings under management have plummeted by 36% to 396,000 from 619,000 since approval, according to Bitcoin tracker Bitcoin Treasuries.

Analysts attribute the drop to Grayscale’s high fees, which at 1.5% are six times higher than the 0.25% offered by BlackRock and Fidelity, its two biggest competitors.

Grayscale didn’t say what the fee will be for the new fund, but a person familiar with the situation told Reuters that the new ETF is an attempt by Grayscale to offer investors exposure to Bitcoin at a lower cost.

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James Seyffart — an analyst at Bloomberg Intelligence who predicted Grayscale would offer a similar product in 2021 — said Grayscale could use the new mini trust as a “spinoff” to retain its higher fees while incentivising investors to stay.

“If they went from 2% fee to a competitive 0.2% fee — that would be a 90% reduction in revenue,” Seyffart wrote on X, “Would you willingly cut your salary from $200,000 to $20,000 when there are alternatives?”

Balchunas said high capital gains taxes will increase the dividend’s appeal, as Grayscale holders will take a tax hit when they sell. By distributing the new mini trust shares through a “special dividend,” Balchunas said, investors will avoid paying taxes on their GBTC holdings and be appeased by the free shares.

When asked for comment, Grayscale referred DL News to Tuesday’s filing.

Tyler Pearson is a junior markets correspondent at DL News. He is based out of Alberta, Canada. Got a tip? Reach out to him at ty@dlnews.com.

Updated link in seventh graph and removed an earlier reference to Fidelity Canada’s Bitcoin ETF.