Bitcoin
Why a 10% Drop in Grayscale’s Bitcoin ETF on Tuesday Shouldn’t Rattle Investors
Main conclusions
- Holders of the Grayscale Bitcoin Trust (GBTC) by the end of trading on Tuesday will see 10% of their holdings converted to the new Grayscale Bitcoin Mini Trust.
- This move caused GBTC’s share price to drop by more than 10% on Tuesday.
- The Grayscale Bitcoin Mini Trust comes with lower fees than GBTC.
- Starting Tuesday, GBTC investors will receive one share of the new ETF for every GBTC share they own.
Grayscale Bitcoin Trust (GBTC), the second-largest spot bitcoin exchange-traded fund (ETF) by assets, has lost 11% of its value Tuesday. But investors shouldn’t worry, Grayscale said.
The decline was widely expected, as 10% of the bitcoin held by the fund was spun off to create the Grayscale Bitcoin Mini Trust. The further drop can be attributed to changes in the price of bitcoin, which has trended down by around 2% in recent trading.
What’s going on with the Grayscale Bitcoin Trust?
The Grayscale Bitcoin Trust existed as a bitcoin investment fund even before the U.S. Securities and Exchange Commission approved it. Spot Bitcoin ETFs in January this year. Once the approval came, the existing Grayscale fund was converted into a spot bitcoin (BTCUSD) ETF. However, it witnessed massive outflows, mainly on account of the comparatively higher fees it charged.
The Grayscale Bitcoin Mini Trust is a new spot bitcoin ETF that comes with lower fees and offers smaller denominations than the Grayscale Bitcoin Trust.
A 10% distribution of the existing fund’s bitcoin holdings will seed the new ETF. So what does this mean if you’re a GBTC investor?
Investors in GBTC as of Tuesday will be entitled to shares in the new ETF, although if you buy GBTC after Tuesday, you won’t receive any shares in the new fund. Existing holders will receive one share in the new ETF for every share held in GBTC.
Pending regulatory approval from the SEC, the Grayscale Bitcoin Mini Trust is set to launch on NYSE Arca, trading under the symbol “BTC.”
Should I Care About Grayscale’s ‘Mini’ Bitcoin ETF?
With this new product, Grayscale hopes to offer a ETF which is more competitive with other options in the market, such as BlackRock’s iShares Bitcoin Trust (I BITE), which has seen just under $20 billion in inflows since its launch in January, according to Farside Investors. Meanwhile, GBTC has seen nearly $19 billion in outflows. The iShares ETF charges a fee of 0.25% versus GBTC’s 1.5%.
A similar situation exists with the Grayscale Ethereum Trust (IT IS) and the Grayscale Ethereum Mini Trust; however, a key difference is that the Grayscale Ethereum Mini Trust was available on the first day of the first spot ether (ETHUSD) ETFs available for trading on US exchanges earlier this month.
As of the end of trading on Monday, ETHE had seen approximately $1.7 billion in outflows, while the Grayscale Ethereum Mini Trust had seen $168.9 million in inflows, according to Farside Investors.