Grayscale Leadership and Those High GBTC Fees

Grayscale Investments this week announced the sudden departure of Chief Executive Officer Michael Sonnenshein, who will be replaced by Peter Mintzberg, the current global head of strategy for asset management at Goldman Sachs.

For anyone outside Grayscale’s executive boardroom or C-suite, it would be difficult to attribute the executive turnover to anything beyond the $17.6 billion that has flowed from the flagship Grayscale Bitcoin Trust ETF (GBTC) this year.

GBTC had about $26 billion in assets under management just before winning SEC approval to convert to a spot bitcoin fund on Jan. 10. It still has about $18 billion in AUM, which would be lower if not for bitcoin's massive price surge this year. The loss of assets has resulted largely from its 1.5% expense ratio, the highest among the 11 fledgling products and more than 12 times the expense ratio of the iShares Bitcoin Trust (IBIT). 

Grayscale executives have certainly noticed the contrast between IBIT attracting more than $15.7 billion since Jan. 11—the most among spot bitcoin ETFs. IBIT reached the $10 billion mark faster than any ETF ever.

Maybe the bigger question is why investors are sticking with GBTC when the alternatives are a fraction of the price.

Grayscale Learns Fees Matter

Grayscale trimmed its expense ratio to 1.5% from 2% when it converted to a spot bitcoin fund earlier this year. But the higher fee was always based on business models practiced in places like Europe and Canada, not the United States, where a company like Vanguard was forcing fees lower across the board.

“They’re not really ETF natives and that’s why they got it so wrong,” said Bloomberg Intelligence Senior ETF Analyst Eric Balchunas.

“I think their misread was that 1.5% wouldn’t seem so high compared to the other spot bitcoin ETFs,” he added.

Balchunas said that at this point, Grayscale might be boxed in by a business model that has been designed around the higher fee model of its flagship product.

“They probably should have been lowering the expense ratio in increments, because if you just go to 20 basis points from here that will be really rough,” he said. “They’re not alone; this is the same dilemma that many active ETFs are facing right now.”