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Grayscale's Bitcoin ETF Hides One Important Catch


u.today 29 June 2022 14:35, UTC
  
Reading time: ~2 m

Grayscale is getting ready for the final decision on their conversion into a spot Bitcoin ETF on July 6, which is the deadline for U.S. regulators. But whatever the outcome is, Grayscale will most likely lose more than it can achieve, according to Bloomberg.

The "easiest" scenario for Grayscale is the negative decision of the SEC, which would be based on potential fraud and market manipulation, as always. Previously, the regulator used it as the main basis for denying similar applications, and it also remains the most expected thing that is going to happen.

But if the SEC surprisingly approves the application, Grayscale Bitcoin Trust may face some interesting consequences. As for now, the fund charges its holders a 2% fee, which allows them to make roughly $230 million per year.

As you may have already assumed, the 2% will never be trasfered in the ETF world as it would push any potential ‌investors away from Grayscale, even if they would offer direct exposure to Bitcoin rather than a derivative.

The closest competitor of a potential Grayscale Bitcoin ETF-ProShares Bitcoin Strategy ETF offers a less than 1% fee.

In a nutshell, Grayscale conversion to an ETF will hurt Grayscale itself as it would have to break up with hundreds of millions in fee revenue, which could become a massive loss for a crypto company entering the digital assets market lacking new funds.

But the main reason behind the conversion is still tied to the instability of the fund's shares that jump from premium to discount every time the market faces a spike in volatility. In the event of becoming an ETF, Grayscale will be available to implement a redemption mechanism by destroying and creating new shares.


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