The Grayscale Bitcoin Trust, which recently became the first US ETF to invest directly in Bitcoin, has faced massive outflows of over $579 million in its first week of trading, according to Bloomberg. This contrasts sharply with the other nine spot Bitcoin ETFs, which have attracted nearly $1.4 billion in inflows.
The Grayscale Bitcoin Trust, which was previously a trust that traded at a premium to its net asset value, received approval from the US Securities and Exchange Commission to convert to an ETF last week. This allowed investors to redeem their shares at the market price rather than paying a fee to Grayscale.
As a result, many investors decided to take profits from their holdings, as the fund’s shares traded at a discount to its net asset value after the conversion. Bloomberg reported that over $2.3 billion worth of GBTC shares exchanged hands on its first day as an ETF, but the outflows indicate that much of that volume was due to selling.
“Thanks to the ETF conversion this is the first time we’ve had clear sight into flows of GBTC,” said James Seyffart, an ETF analyst at Bloomberg Intelligence, who observed that investors might be engaging in profit-taking.
Grayscale Faces Competition From Cheaper Alternatives
The outflows from Grayscale’s ETF also reflect the increased competition from other issuers who have launched cheaper and more efficient spot Bitcoin ETFs. Grayscale’s ETF charges an expense ratio of 1.5%, making it the most expensive US ETF that invests directly in Bitcoin. The second-most expensive fund, the VanEck Bitcoin Trust, charges only 0.25%.
Grayscale has dominated the market for regulated Bitcoin investing for over a decade. Now that other issuers have come to market, we are naturally seeing some rotation into these new products […] Total net inflows into Bitcoin investment products are what matters for prices, not substitution from one product to another, said Zach Pandl, Grayscale’s managing director of research.
Despite the outflows from Grayscale’s ETF, the demand for spot Bitcoin ETFs remains strong, as evidenced by the inflows into the other funds. BlackRock’s IBIT, which launched on the same day as Grayscale’s ETF, has pulled in nearly $500 million in its first two days of trading, making it the largest spot Bitcoin ETF by assets. Fidelity’s FBTC, which debuted a day later, has received roughly $421 million in inflows.
The inflows suggest that even outside of potential seed funding from fund issuers, investors are eager to gain exposure to Bitcoin in a physically backed ETF, which offers lower costs, higher liquidity, and better security than other vehicles.
Bloomberg Intelligence forecasted that Grayscale’s ETF will lose over $1 billion in outflows over the coming weeks, but Seyffart said that “lots of this capital will find its way back into other Bitcoin exposures.”
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