Grayscale Bitcoin ETF records first inflow after losses

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As an experienced financial analyst, I have closely followed the developments in the Bitcoin and Ethereum exchange-traded fund (ETF) markets. The recent news of Grayscale’s Bitcoin Trust (GBTC) recording its first net inflow since its conversion to an ETF is a positive sign for the market. However, this shift from outflows to inflows also comes with increased competition from other Bitcoin ETFs with lower fees.

The largest Bitcoin ETF by assets, Grayscale’s Bitcoin Trust (GBTC), which was launched in January 2024, experienced its initial influx of new assets, marking the first net gain since its inception.

This comes after the fund experienced $1.6 billion in outflows before the Bitcoin halving.

As an analyst, I’d rephrase it this way: On May 3rd, according to Farside Investors’ data, GBTC recorded a net inflow of $63 million. This was the first positive net flow for the fund since its conversion into an ETF in January. With the launch of 11 new spot Bitcoin ETFs in the US during that period, this marked a significant reversal in the fund’s trend.

One explanation for the continuous redemptions from GBTC following its transformation into an ETF is the fund’s high annual management fee of 1.5%. This fee stands out as significantly more expensive compared to other Bitcoin ETFs, which typically charge less than 1%.

Additionally, the mass selling of GBTC shares by insolvent crypto firms, such as FTX and Genesis, has significantly contributed to the recent outflows. FTX disposed of around $1 billion in GBTC shares, while Genesis offloaded approximately 36 million shares, worth about $2.1 billion, to acquire Bitcoin instead.

On May 3rd, the collective market witnessed a substantial net investment of $378 million. Among the notable gains, Franklin Templeton’s Bitcoin ETF (EZBC) attracted its largest-ever intake of $60.9 million, while Fidelity’s Bitcoin ETF (FBTC) topped the list with an inflow of $102.6 million.

The influx of new funds has halted the sequence of net sales from Grayscale’s Bitcoin Trust (GBTC), causing its current assets to amount to $18.1 billion. In comparison, the Institute of Blockchain and Institutional Technology (IBIT) now holds $16.9 billion in assets. Initially, IBIT started with no assets at all in January, while GBTC had over $26 billion. Although this influx is a promising sign for GBTC, the swift expansion of IBIT poses increasing competition.

The transition from outgoing to incoming funds in GBTC and the larger Bitcoin ETF sector is sparking optimism among investors. Some believe this trend could be a precursor to Bitcoin hitting fresh record prices. Nevertheless, it’s uncertain if this trend will persist in light of lingering regulatory and market uncertainties.

Ethereum ETF: Grayscale remains hopeful  

As an analyst, I’m optimistic that Grayscale will secure the SEC’s approval for its ETFs based on Ethereum (ETH) by May. Despite recent apprehensions regarding the SEC’s engagement with applicants and their investigation into the Ethereum Foundation, I believe Grayscale has a strong case given their track record of success with Bitcoin-backed products.

Craig Salm, Grayscale’s Chief Legal Officer, pointed out the likenesses in the approval procedures for Bitcoin and Ethereum spot ETFs. He underscored that at their core, these processes share similarities, with the primary distinction lying in the underlying assets – Bitcoin versus Ethereum.

According to Salm’s perspective, this uniformity in Grayscale’s operations is expected to simplify the SEC’s examination procedure, boosting Grayscale’s confidence in achieving a favorable decision.

The perspective of Grayscale is distinct from that of Eric Balchunas and James Seyffart, Bloomberg ETF analysts. They have scaled back their predictions for the approval of a spot Ethereum ETF by the end of May to only a 25% likelihood.

According to Balchunas, it’s possible that the SEC’s seeming inaction is intentional rather than just a postponement.

Expert: Coinbase, a well-known cryptocurrency exchange, has advocated for the SEC’s consideration of Grayscale’s proposed Ethereum Spot Exchange-Traded Fund (ETF). In their submission to the SEC, Coinbase contends that the rationale underlying the approval of Bitcoin Spot ETFs holds equal, if not greater significance, in the context of Ethereum Spot ETFs.

The Securities and Exchange Commission (SEC) is anticipated to reach a verdict on VanEck’s ETF application by May 23. It’s also speculated that decisions regarding other applicants, including BlackRock, Fidelity, and Grayscale, will be unveiled around the same time. These firms are aggressively working towards securing approval for their Ethereum spot ETFs.

Based on the similarities in the regulatory review procedures for approving spot Bitcoin and Ethereum Exchange-Traded Funds (ETFs), Grayscale expresses optimism about the SEC’s decision.

As a crypto investor, I believe that the concerns raised by the Securities and Exchange Commission (SEC) during their decision-making process for a Bitcoin Spot ETF might hold similar ground for a potential Ethereum Spot ETF. Given that the SEC has already tackled these issues with Bitcoin, it could streamline the approval process for an Ethereum Spot ETF, making it a promising possibility.

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2024-05-06 02:58