Grayscale Bitcoin Trust (GBTC) Sees Continued Outflows: What’s Happening?

The Grayscale Bitcoin Trust (GBTC), which is the biggest Bitcoin exchange-traded fund (ETF) globally, has experienced consistent outflows for an entire month.

Bloomberg Data Grayscale Bitcoin Trust (GBTC) experienced $7.4 billion in outflows in its first 31 trading days.

Last updated: February 27, 2024 10:13 EST | 2 min read

Ruholamin Haqshanas

The Grayscale Bitcoin Trust (GBTC), the world’s largest Bitcoin exchange-traded fund (ETF), has seen continued outflows for an entire month, raising concerns among investors. According to Bloomberg data, GBTC witnessed $7.4 billion exiting the fund across 31 consecutive trading days as of Monday. This is in stark contrast to the other nine newly launched spot Bitcoin ETFs, which have all experienced net inflows since their inception. So, why is GBTC experiencing significant outflows while its competitors thrive?

The Costly GBTC Dilemma

Several factors have contributed to Grayscale’s continued outflows. While GBTC remains the largest and most actively traded Bitcoin ETF, its 1.5% management fee makes it the most expensive offering in the market. In contrast, the majority of its competitors charge less than 0.3%. This significant cost difference is driving investors towards more affordable alternatives.

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To add insult to injury, bankrupt estates, including Genesis Global Holdco LLC, have sought to offload their GBTC holdings. These factors combined have undoubtedly played a role in the consistent outflows observed.

“It’s like going to a fancy restaurant and ordering a burger, only to realize it costs three times the price of a gourmet steak!” exclaimed Amrita Nandakumar, President of Vident Asset Management. The high management fee of GBTC certainly makes it less appetizing for investors.

Surprising Consistency of Outflows

Even considering the reasons mentioned above, the consistency and duration of GBTC’s outflows have surprised industry observers. Vident Asset Management highlighted that while outflows were expected due to long-term holders waiting for the fund’s conversion, the duration and consistency of the outflows are noteworthy.

“Does it go to 60 days? I don’t think so, but then again, I’m surprised to see it got to thirty,” said Nandakumar. This remark encapsulates the astonishment felt by many in the industry.

Nevertheless, it is worth noting that outflows have slowed in recent days, with only $22 million leaving the fund on Monday compared to the peak of $640 million in January. While this provides a glimmer of hope for GBTC, its year-to-date outflow of $7.4 billion still ranks as the second-largest among over 3,400 US-listed ETFs. The road to recovery may be long and challenging.

Other Spot Bitcoin ETFs Thrive

While GBTC experiences outflows, the other nine spot Bitcoin ETFs launched in January are attracting billions of dollars amid the cryptocurrency’s rally. Prominent industry giants like BlackRock and Fidelity lead the pack, amassing approximately $6 billion and $4 billion, respectively, followed by Ark Invest and Bitwise.

The trading volume of daily spot Bitcoin ETFs recently amounted to nearly $2 billion, the highest level since the first day of trading. This surge in trading activity reflects the growing interest in Bitcoin ETFs.

Moreover, spot Bitcoin ETFs have witnessed substantial inflows, with approximately $2.3 billion pouring in last week alone, nearly doubling the previous week’s inflow of $1.2 billion. It seems that investors’ enthusiasm for spot Bitcoin ETFs is unmatched.

Gold ETFs Face a Net Outflow

Interestingly, as Bitcoin ETFs thrive, there has been a net outflow from Gold ETFs. Global investors’ growing appetite for U.S. equity appears to be driving this shift. The leading 14 Gold ETFs have experienced outflows of $2.4 billion in 2024 as of February 14.

However, despite the challenges, GBTC still enjoys a loyal following among cryptocurrency enthusiasts. Its triumph over regulatory hurdles and the brand loyalty it has cultivated contributes to its enduring popularity. Many investors, appreciating Grayscale’s stance against the SEC, are willing to overlook GBTC’s relatively high fee.

Year-to-date, GBTC’s share price has even surged by 40%, outperforming Bitcoin’s approximately 34% increase. This demonstrates the enduring strength of GBTC and its ability to deliver returns despite the outflows.

On Tuesday, Bitcoin surpassed $57,000 for the first time since late 2021, signaling the ongoing strength of the largest digital currency. This milestone serves as a reminder of the potential that Bitcoin and its related investment products, including ETFs, hold.

Q&A Content

Q: What makes GBTC the most expensive Bitcoin ETF in the market?

A: GBTC’s 1.5% management fee sets it apart as the costliest Bitcoin ETF. In contrast, most of its competitors charge fees below 0.3%. This significant cost difference is a major factor driving investors towards more affordable alternatives.

Q: Why are bankrupt estates offloading their GBTC holdings?

A: Bankrupt estates, such as Genesis Global Holdco LLC, have sought to offload their GBTC holdings to alleviate their financial burdens. These entities see selling their GBTC holdings as a way to liquidate assets and access funds to cover their obligations.

Q: Are there any alternative Bitcoin ETFs that investors should consider?

A: Yes, there are nine other spot Bitcoin ETFs that have been launched in January and have attracted significant inflows. Industry giants like BlackRock and Fidelity offer Bitcoin ETF options that have gained billions of dollars in assets under management. These alternatives provide investors with more competitive fees and potential upside.

Future Outlook: Trends and Recommendations

Bitcoin and the cryptocurrency market in general continue to show strength and resilience. Despite GBTC’s recent outflows, the overall interest and demand for Bitcoin ETFs remain high. As the industry matures and more players enter the market, investors can expect increased competition and innovation.

To adapt to market dynamics and investor preferences, Grayscale may need to reconsider its management fee structure. Lowering fees to be more competitive with other Bitcoin ETFs could help stem the outflows and regain investor confidence.

In terms of investment strategies, diversification is key. Investors should consider allocating a portion of their portfolio to Bitcoin and other cryptocurrencies through different ETFs. This will help spread risk and take advantage of potential upside opportunities.

As always, it is crucial to stay informed and monitor market trends. Following the latest news, regulatory developments, and technological advancements will give investors an edge in navigating the dynamic world of cryptocurrencies.

References

1. Grayscale CEO Michael Sonnenshein: “Diversity in crypto is taking root”
2. All Systems Go: Bloomberg Terminal Populates 11 Proposed BTC ETFs
3. Spot Bitcoin ETFs Poised for $36 Billion Influx, JPMorgan Highlights Rotational Capital Movement
4. A Net Outflow From Gold ETFs Is Being Seen. Why?
5. Bitcoin Tops $57,000 for First Time Since Late 2021

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