Why Grayscale GBTC Loses to BlackRock's IBIT iShares Bitcoin Trust Fund

Author: Jack Inabinet, Bankless; Compiler: Tao Zhu, Golden Finance

Grayscale Bitcoin Trust (GBTC) was originally created in 2013 and became the largest spot BTC ETF by assets under management with a decade-long lead, which enabled it to accumulate nearly $30 billion in BTC. Now, GBTC's dominance is over. Which ETF took its place and what conclusions can we draw from this development?

For most of Bitcoin's existence, GBTC has been the main way for TradFi participants to gain BTC exposure, but after the long-awaited launch of the spot BTC ETF, GBTC began to decline, and the spot BTC ETF finally achieved redemption in mid-January.

While GBTC trading activity dominated spot BTC ETF volume in the weeks following the conversion, it was plagued by outflows during this period, consistently losing hundreds of millions of dollars in BTC per day.

By the end of April, these sustained outflows had largely subsided, and in May, GBTC has managed to record 6 days of inflows!

While the recent relatively stable fund flows have undoubtedly brought some comfort to Grayscale, it has proven to be insufficient for GBTC to maintain its market share lead...On March 28, BlackRock's IBIT iShares Bitcoin Trust finally surpassed GBTC in terms of AUM!

While GBTC is well ahead of nascent products until 2024, this reversal is inevitable due to GBTC’s relatively outrageous fee structure and BTC’s increasingly institutionalized existence.

Grayscale chose to maximize the value of GBTC’s fee-generating power, reasoning that many holders would not sell due to tax implications and other factors. As a result, it adopted an extremely aggressive 1.5% management fee, which is six times higher than the management fees of alternative spot BTC ETFs!

While Grayscale plans to launch a low-fee alternative mini BTC ETF in the near future, the desire to maximize GBTC revenue makes the product uncompetitive with existing products.

Furthermore, despite Grayscale’s influence in the crypto-native space, the group is relatively unknown among TradFi participants and does not have the same degree of client relationships as trillion-dollar asset managers like BlackRock and Fidelity.

Outside capital flocking to crypto is attracted to instruments backed by well-known companies, and it makes sense that they would avoid GBTC in favor of new instruments like IBIT, given its high management fees and lower liquidity than leading alternatives.