Bitcoin ETFs are soaring, but one is struggling. Blame high fees (2024)

Investors have poured money into spot Bitcoin ETFs, but the market has not yet reached its full potential due to the underperformance of one ETF.

That would be the world’s largest crypto asset manager Grayscale’s Bitcoin Trust ETF (NYSE: GBTC), which has been experiencing consistent outflows of funds for the past few weeks.

What’s wrong with GBTC?

During the latter half of March, there were no inflows of funds to GBTC, only outflows, according to Farside. So far, the fund has experienced an outflow of $14 billion, causing the total net inflows on the spot Bitcoin ETFs not to reach their full potential.

So far, BlackRock’s iShares Bitcoin Trust, or IBIT, has seen an inflow of $13 billion, followed by Fidelity’s FBTC with $7 billion, ARK 21Shares’s Bitcoin ETF ARK with $2.3 billion, and Bitwise’s BITB with $1.6 billion, per Farside.

Other spot Bitcoin ETF efforts were overshadowed by GBTC outflows of $14 billion, resulting in a total net inflow of $12 billion, which could have been higher if GBTC had seen inflows.

Why is GBTC seeing outflows?

Grayscale was one of the first companies to offer Bitcoin in a mutual fund-like product. However, this product was a topic of dispute with the Securities and Exchange Commission. After the SEC approved U.S.-listed ETFs tracking Bitcoin, the $27 billion Grayscale Bitcoin Trust converted into an ETF.

The problem is that GBTC charges an annual fee of 1.5%, which is considerably higher than other funds. For instance, BlackRock’s IBIT, Fidelity’s FBTC, and Bitwise’s BITB have waived the fee for a certain period of time to attract investors.

Will GBTC’s outflows affect the whole market?

Asking on why GBTC is seeing so much outflow, crypto expert Noelle Acheson, who once worked with Grayscale-linked company Genesis, said in an email: “It’s just about the fees, there isn’t really any other reason.”

“All BTC spot ETFs are pretty much the same, the only differentiator is brand and fees — new investors are not going to want to pay 1.5% when they could be paying 0% for exactly the same product elsewhere,” she added.

Due to inflows into spot Bitcoin ETFs, the entire cryptocurrency market has emerged from a dark phase, causing Bitcoin to reach its new peak.

The way GBTC is struggling to attract investors due to its high fees, it won’t be surprising if it drowns out the whole spot Bitcoin ETFs market. Such an outcome could have a ripple effect on the crypto market.