Grayscale Files for Bitcoin 'Mini Trust'—Will It Offset GBTC Losses?

Grayscale has a new Bitcoin ETF product in the works that may help stem the tsunami of outflows that has plagued its Grayscale Bitcoin Trust (GBTC) over the last two months.

Per an S-1 statement filed on Tuesday, the Grayscale Bitcoin Mini Trust—which will boast the familiar ticker “BTC”—will be seeded as a “Spin-Off” of the much larger GBTC fund. That means some portion of GBTC’s underlying Bitcoin stash will be diverted into the newer fund, and existing GBTC shareholders will be compensated with a proportional number of BTC shares.

“The Spin-Off is not expected to be a taxable event for GBTC or its shareholders,” the filing notes.

While the filing hasn’t disclosed what portion of GBTC’s Bitcoin will be diverted, nor what the new fund’s management fee will be, analysts have a strong feeling about what the company is up to.

“Pretty sure this will be a non-taxable event for a chunk of those shares to get into a cheaper and cost-competitive product,” wrote Bloomberg ETF analyst James Seyffart on the matter.

Since converting into a spot Bitcoin ETF on January 11, GBTC has seen investors redeem 229,000 BTC worth of shares. And the fund hasn’t recorded a single day of net inflows. By contrast, freshly launched competitors from BlackRock and Fidelity have amassed 204,000 and 128,000 BTC respectively, with the “newborn nine” ETFs now cumulatively holding more BTC than Grayscale.

Investors’ preference for other funds comes down to fees. BlackRock and others only charge their holders 20 to 30 basis points per year to hold their BTC, with many entirely waiving their fee for early buyers.

Grayscale, by contrast, continues to charge 1.5%, giving new ETF buyers no reason to enter their fund over others. Before ETF conversion, the fund charged a 2% fee for several years.

In fact, the only reason to stay in GBTC would be for long-time holders to avoid realizing a taxable event by selling their shares.

Unfortunately for Grayscale, lowering its fees would be a nightmare for its revenue, which is the primary money maker for its embattled parent company Digital Currency Group. Seyffart believes the ”Spin-Off” approach provides a healthy middle ground between investors in need of lower fees and the company’s desire to maintain revenue.

“If they went from 2% fee to a competitive 0.2% fee — that would be a 90% reduction in revenue,” the Bloomberg analyst explained. “Would you willingly cut your salary from $200k to $20k when there are alternatives?”

Edited by Stacy Elliott.