Grayscale’s GBTC Outflows Hit $7B Amidst Recovery, But ‘Bleeding’ to Continue

Grayscale GBTC’s outflows have been experiencing outflows. Data shows that as of February 16th, the total funds withdrawn from GBTC since its conversion to a spot Bitcoin ETF have amounted to $7 billion.

While the figure appears to be slowing down considerably, the once-premier fund is seeing stiff competition from ETFs by BlackRock and Fidelity, which have grown their asset bases with inflows.

GBTC Outflows Hit $7B

The bulk of the exodus happened in January, with $5.64 billion departing GBTC by month’s end, whereas February has only witnessed $1.37 billion in outflows so far. This essentially depicted that the rate of outflows has slowed down.

In the latest tweet, ETF Store President Nate Geraci, however, said he believes GBTC is expected to bleed more. Although the pace of outflows has notably decreased, market experts suggest that the trend of fund outflows might continue for some time.

GBTC flows slowing with AUM still well north of $20B

I thought their bet that investors can be easily taken advantage of was wrong in this instance and I was clearly the one that was wrong

— Jake (@EconomPic) February 19, 2024

GBTC previously held a strong position in the spot ETF market, accounting for more than half of trade volumes. However, recent figures from Kaiko indicate a notable decrease in its market share, falling to around 30% just last week.

Factors Responsible for Outflows

It is important to note that ten out of the eleven spot BTC ETFs that started trading on January 11th kicked off with zero assets. Grayscale, on the other hand, was a conversion from a closed-end fund which started with approximately $29 billion in BTC.

According to Bianco Research founder and former Wall Street analyst and commentator Jim Bianco, there are two main factors of continued GBTC outflows.

Firstly, competition from other funds offering lower fees has lured investors away from Grayscale, which charges a comparatively higher fee of 150 basis points (bps). Meanwhile, competing funds have reduced their fees to as low as 0 to 12 bps, making them more attractive options.

Secondly, prior to its conversion to an ETF, Grayscale consistently traded at a substantial discount to the price of BTC as a closed-end fund. This discount hit a notable 44% on June 13, 2023. However, the introduction of a spot BTC ETF by BlackRock on June 15, 2023, prompted investors to seek cheaper BTC alternatives.

Consequently, as Grayscale transitioned into an ETF on January 11, 2024, investors closed this “arbitrage-type” trade, accomplishing their investment objectives and leading to the observed outflows.