Grayscale files for Bitcoin ‘mini trust’—will it offset GBTC losses?

Greyscale has a new Bitcoin ETF product to help stem the tsunami of outflows that have plagued the Greyscale Bitcoin Trust (GBTC) over the past two months.

In an S-1 filing filed Tuesday, the Greyscale Bitcoin Mini Trust—which boasts the ticker symbol “BTC”—will be spun off as a “spin-off” from the much larger GBTC fund. That means that a portion of the underlying bitcoin reserves of GBTC will be transferred to the new fund, and GBTC shareholders will be compensated with proportionate amounts of BTC shares.

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

While the filing doesn't say how much of GBTC's Bitcoin will be converted or what the new fund's management fee will be, analysts have high feelings about what the company is up to.

“Obviously, this is going to be a non-taxable event for a segment of those stocks to get into a cheap, cost-friendly product,” said Bloomberg ETF analyst James Seifert.

Since converting to a Bitcoin ETF on January 11th, GBTC has seen investors buy 229,000 BTC worth of shares. And the fund has not recorded a single day of net income. In contrast, newly launched competitors from BlackRock and Fidelity collected 204,000 and 128,000 BTC respectively, with the “Newborn Nine” ETFs now holding more BTC than Grayscale overall.

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

Grayscale, on the other hand, continues to charge 1.5%, giving new ETF buyers no reason to put their funds elsewhere. Before the ETF switch, the fund charged 2% for several years.

In fact, the only reason to stay in GBTC is to avoid a taxable event for long-term holders by selling their shares.

Unfortunately for Greyscale, the fee cut would be a nightmare for its revenue, which is a major money maker for its troubled parent company, Digital Currency Group. Seifert believes the “spin-off” approach provides a healthy middle ground between investors who need lower fees and the company's desire to maintain earnings.

“If you go from a 2% fee to a competitive 0.2% fee – that would be a 90% drop in revenue,” said a Bloomberg analyst. “Would you willingly cut your salary from $200,000 to $20,000 given the options?”

Edited by Stacy Elliott.