Ethereum
Grayscale Tries to Maintain Leading Position in Ether ETF Battle
Representation of the Gayscale cryptocurrency and logo displayed on a phone screen.
Jakub Porzycki | Nurphoto | Getty Images
Grayscale, founded in 2013, has spent years building a fund that holds more than $9 billion worth of ether. That fund has now been converted into an ETF, one of two the firm will offer. Grayscale is a unit of Barry Silbert’s crypto conglomerate Digital Currency Group.
With the SEC paving the way for ETFs, Grayscale will have plenty of rivals and investors will be able to hunt for the lowest fees. Major financial firms including Fidelity Investments, Franklin Templeton, Black rock and Invesco, are already on the market with their own spot ether ETFs.
The same thing happened in January, when Bitcoin ETFs were approveda decision that led many investors to abandon Grayscale’s products in favor of cheaper alternatives.
On their first day of trading on Tuesday, spot ether ETFs collectively recorded over $1 billion in volume, with JP Morgan Analysts estimate net sales at $104 million.
As money poured into the new offerings, the Grayscale Ethereum Trust (ETHE) saw $485 million in redemptions. JPMorgan attributed the outflow to investors likely moving to cheaper alternatives or using the ETF conversion to capitalize on increased liquidity compared to the previous trust structure. Second-day trading was not yet available at press time.
In the Bitcoin ETF In the market, Grayscale has struggled to manage the flood of competition.
Grayscale began trading shares of its Bitcoin Trust (GBTC) fund in 2015 as a closed-end fund in what Morningstar’s Bryan Armour previously described as “a kind of monopoly.” In the first seven months of trading after converting from a trust to an ETF, the company saw outflows of nearly $18.7 billion, according to JPMorgan, largely because its 1.5% management fee is significantly higher than that of its competitors.
In May, BlackRock exceeds Grayscale is getting into assets with its iShares Bitcoin ETF. Blackrock’s ETF has a fee, excluding waivers, of 0.25%.
Along with Ethereum, Grayscale offers ETHE, which charges a 2.5% fee, 10 times higher than the next highest fee among newly listed funds. Grayscale also divested 10% of its assets to form a mini Ethereum ETF designed for retail clients. Grayscale Ethereum Mini Trust (ETH) This is an economical product with fees of 0.15%, the lowest of the new ETFs.
Other issuers in this category charge fees between 0.19% and 0.25%. Most issuers waive the fee initially, and some do so for up to a year.
Grayscale’s David LaValle, the firm’s global head of ETFs, told CNBC in a statement that ETHE “has been and continues to be a reliable and effective tool for investors seeking exposure to Ethereum in the form of a U.S.-regulated security.”
Since its IPO in June 2019, its Ethereum fund has posted annual returns of 61%, LaValle said, adding that the Ether mini ETF “came to market with the lowest management expense ratio.” Between its two products, Grayscale has the highest and lowest management fees.
LaValle said the “big picture” is that the $1 billion in first-day volume “is a testament to the many industry participants who are stepping up to play their part in supporting investors and the Ethereum ETP ecosystem.”
Figuring out how to navigate the new ETF world will be the responsibility of the old hands Goldman Sachs Peter Mintzberg, who was appointed Grayscale CEO in May, just days before BlackRock overtook Grayscale’s Bitcoin ETF in terms of assets.
Mintzberg replaces Michael Sonnenshein, who led Grayscale Investments for a decade. That role took him around the world, from the World Economic Forum in Davos to virtually every major cryptocurrency conference.
During Sonnenshein’s tenure, the company led the largest Bitcoin funds, with more than $43 billion in assets under management at its peakGrayscale dominated the crypto fund management industry, giving it considerable pricing power. It was considered by many to be the crown jewel of Silbert’s crypto empire.
In a historic moment for the crypto industry, Sonnenshein led Grayscale to a victory in its legal battle with the Securities and Exchange Commission regarding its application to convert GBTC into a spot Bitcoin ETF. The victory paved the way for broad approval of bitcoin spot ETFs and helped cement the cryptocurrency as a legitimate asset class.
Although Sonneshein has clarified Grayscale’s legal path, the company’s competitive advantage is more unclear than ever. Press release In May, he announced his resignation, saying he was leaving to “pursue other interests.” His LinkedIn profile identifies him as the former CEO of Grayscale and says he is an advisor to several companies. Sonnenshein did not respond to a request for comment.
Silbert stepped down as Grayscale’s chairman in December and was replaced by Mark Shifke, DCG’s chief financial officer. Mintzberg will officially take over as CEO in mid-August. Grayscale’s chief financial officer, Edward McGee, will lead the company in the interim.
Beyond Grayscale, DCG was beaten In the wake of the 2022 cryptocurrency crisis, lending firm Genesis has finally filed for bankruptcy protection. bankruptcy after having been accused by the SEC with the sale of unregistered securities. In May, New York Attorney General Letitia James ruler with Genesis for $2 billion to repay defrauded investors.
While Grayscale has its challenges, the company is benefiting from a rebound in the cryptocurrency market over the past 18 months. Bitcoin’s price has quadrupled since late 2022, and GBTC has done even better, increasing Ethereum’s price more than sevenfold.
DCG’s revenue increased 51% in the first quarter compared to the previous year, and the company says it has repaid all of its debt, with its only remaining debt being to Genesis.
Grayscale is trying to ride this renewed enthusiasm by writing in a Press release Tuesday, “customer demand is increasing in line with the maturation of the crypto asset class.”