Bitcoin exchange-traded funds (ETFs) have significantly influenced the cryptocurrency market since their initial outflows in January. Even market observers were impressed by the record performance of these financial products. However, consistent outflows have been observed from one of the standout products, Grayscale’s Bitcoin Trust, leading to concerns about its future direction.
What’s Happening with GBTC?
Blockchain analytics firm Arkham Intelligence has estimated that if the current redemption rate continues, GBTC could exhaust its Bitcoin reserves within the next 96 days. Since its conversion to a spot Bitcoin ETF fund in January, Grayscale’s Bitcoin balance has decreased by 266,470 Bitcoin.
This represents a significant drop from its initial holdings of approximately 620,000 Bitcoin. The downward trend is attributed to consistent weekly outflows from the GBTC fund, averaging about 25,900 Bitcoin. Arkham Intelligence analysts have stated the following:
“Grayscale started the year holding 618,280 Bitcoin for the Bitcoin Trust GBTC. They now have only 356,440 Bitcoin left. If this continues, they only have 14 weeks before they completely liquidate.”
Prominent Figure Responds Promptly
Grayscale’s CEO Michael Sonnenshein acknowledged the expected outflows and primarily attributed them to profit-taking investors and arbitrageurs exiting the fund. On the other hand, market observers have linked the GBTC outflows to its high fee structure. Eric Balchunas, a senior ETF analyst at Bloomberg, also indicated that the outflows from the past week were predominantly from the bankrupt crypto lender Genesis.
Grayscale is exploring various initiatives to counteract this trend of outflows. Some of these include introducing a mini-fund that provides a cost-effective alternative to GBTC. Sonnenshein also mentioned plans to reduce the firm’s fee of 1.5%, which contrasts sharply with competitors’ rates ranging from 0.2% to 0.5%, and Sonnenshein commented on the issue:
“We’ve seen this in countless other markets with countless other risks, you name it—typically, products tend to have higher fees when they are new to the market at the beginning of their life cycles. As these markets mature and these funds grow, these fees tend to decrease, and we expect the same to be true for GBTC.”
