Wall Street’s New Asset Class: Can Grayscale Survive the Bitcoin ETF Era?

Author: Andrew Singer, cointelegraph Translator: Shan Oppa, Golden Finance

For years, institutions seeking Bitcoin investments have chosen Grayscale Investments, which has more than $28 billion in Bitcoin assets under management (AUM), far more than its closest competitors. several times.

Everything changed on January 11, when 10 companies launched spot Bitcoin ETFs, which were finally approved by the U.S. Securities and Exchange Commission (SEC). Launched exchange-traded funds (ETFs) in the United States for the first time. These companies include Grayscale, which converted the decade-old Grayscale Bitcoin Trust (GBTC) into an ETF.

January 11th was a remarkable moment, not just for the cryptocurrency world but for Wall Street as well. “Very few new asset classes enter the ETF lexicon,” Todd Sohn, ETF strategist and managing director at Strategas Asset Management, told Cointelegraph. “In 1993 we had stocks, in 2002 we had bonds, in 2004 Year of gold.”

But in addition to opening up a relatively primitive asset class to retail investors, January 11 also sparked a race to the bottom. What new ETFs might become popular?

Wall Street giants BlackRock and Fidelity Investments? Or perhaps a more crypto-focused asset manager like ARK Invest or Bitwise, both of which have surpassed $500 million in AUM in the first two weeks? Or maybe it's the existing grayscale that has gone unchallenged for so long? To launch the ETF, it lowered its annual management fee of 2% to 1.5%.

Sohn noted that GBTC is off to a huge start as far as other products are concerned, "but if we take the first two weeks as any indication, it's Issuers like BlackRock and Fidelity are very serious about the product."

Grayscale experienced massive outflows in the first two weeks of launch, but even after redemptions After recovering a loss of US$5 billion, it still retained US$20.2 billion in assets under management as of January 26. By comparison, BlackRock was at about $2 billion and Fidelity at $1.75 billion as of Friday's close. , other ETFs are further back.

Despite this, is it possible for GBTC to maintain its massive lead over TradFi Asset Management in the year ahead?

In the long run, will January 11 be seen as some kind of change of power, marking the beginning of a new era for blockchain startups and cryptocurrency companies? The beginning of being cannibalized by the Wall Street whale?

Industry hangover

Bitcoin price after its spot ETF debut has fallen nearly 20% in a matter of days, raising questions about whether the cryptocurrency industry’s expectations for the new investment vehicle were too high.

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For example, on January 23, JPMorgan analysts said, "The catalysts in the Bitcoin ETF to push the ecosystem out of the winter will disappoint market participants."< /p>

Are the requirements for a spot Bitcoin ETF too high?

"I just want to remember that underlying Bitcoin had already risen significantly before these funds were launched," Thorne said, "so the pause is not a surprise .” By January 29, Bitcoin had recovered somewhat, surpassing $43,000 in the afternoon.

"(In 2004) gold went sideways for a short period of time and then moved higher again," Sohn added.

In fact, starting on November 18, 2004, the first gold ETF gathered more than $1 billion in assets in the first three days, "this "It has established itself as the fastest ETF in its history to attract assets of this level." corporate investor.

The SPDR Gold Trust ETF (GLD) "revolutionized gold trading" and, three years later, has $10 billion in assets under management.

But Sohn's point is: In the first half of the year after GLD was launched, from October 2004 to April 2005, its price on the New York Stock Exchange was almost no change.

Suppressing BTC prices?

Back to now, overall outflows from GBTC and the other 9 ETFs are already decreasing. They tested positive on January 26, their first test results in seven days.

Peter Sin Guili, assistant vice president of financial services at Manulife Financial Advisors, told Cointelegraph: “The GBTC selling pressure/fund outflows caused by investor profit-taking will eventually slow down. , as fund selloffs subside over time."

Guili added that some of the runoff comes from one-time events, such as "FTX bankruptcy estate sold 2,200 10,000 shares of GBTC – $1 billion worth of outflows.”

Justin d'Anethan, head of Asia Pacific business development at cryptocurrency market maker Keyrock, told Cointelegraph: "I am not worried about the outflow of GBTC and the transfer from Grayscale. ” “A lot of people will consider these to be negative [news] for prices, but I don’t think that’s necessarily the case.”

d'Anethan said , this is mainly due to the fact that GBTC’s management fees are several factors higher than most other new spot Bitcoin electronic transfers, and people are “exiting the former, only to switch to the latter”.

After all, the structure or value of the underlying product has not changed. Currently, it is cheaper to buy BTC at the BlackRock "store" or the Fidelity Investments "store" than from GBTC.

"The key question - and we don't know the answer to it - is how much AUM is left," Sohn added. "Is there a pain point with Grayscale's 1.5% fee reduction? This could have a huge impact on who becomes the AUM king."

Will others surpass Grayscale ?

Notably, two weeks after launch, Grayscale "remains the largest AUM spot Bitcoin ETF and is likely to remain so for the foreseeable future." status,” d’Anethan said. He said many holders remain satisfied with Grayscale's set-up, internal due diligence and business relationships.

"They (Grayscale) have a huge first-mover advantage," Seoyoung Kim, associate professor of finance at Santa Clara University's Levy School of Business, told Cointelegraph. "Additionally, there is a cost to switching. One of the reasons people stick with Grayscale despite the expense is that "they may" trigger a tax liability if they switch.

"Other ETF providers may eventually overtake Grayscale in the long term," d'Anethan said, "but it's worth remembering that, for now, the lead is absolutely huge and its assets under management At least $15 billion larger than its nearest competitor. ”

Nonetheless, as Bloomberg analyst Eric Balchunas pointed out in a recent article, the larger trend over the past decade has favored low-fee, Passively managed index stock ETFs at the expense of actively managed, high-fee stock mutual funds. Arguably, this makes the other nine Bitcoin ETFs more in line with current investor preferences than the higher-fee GBTC.

< p style="text-align: left;">Kim also hinted that Grayscale has a fee problem. “Grayscale’s outflows will create opportunities,” she told Cointelegraph, “especially because BlackRock, Fidelity and others will Charge much lower fees. ” 

Meanwhile, Grayscale continued to charge 150 basis points (bps) after the ETF launched. In contrast, BlackRock ETFs charge 12.5 basis points in fees, while Fidelity is waiving their fees entirely until August 1.

"Investors allocating to ETFs are very cost-conscious. Every basis point counts," Bitwise senior cryptocurrency research analyst Ryan Rasmussen told Cointelegraph. "This leaves room for a new low-cost leader to emerge in the Bitcoin ETF spot war. ”

NFTY Labs CEO James Lawrence told Cointelegraph: “I believe larger ETFs such as BlackRock and Fidelity will surpass GBTC in terms of visibility and trading volume. "

Their "well-known brand" and scale give them an advantage, "especially Fidelity's provision of custody services." I expect market dominance to shift quickly to these traditional financial giants. ”

Guili believes that "BlackRock's IBIT will be GBTC's closest competitor", but he did not rule out the possibility of Fidelity, especially Its path-setting custody solution, which he considers "a strong selling point."

Bitwise may also be competitive as it focuses primarily on crypto products , and “has a huge support base and brand recognition among early cryptocurrency adopters in the crypto space.”

Transfer of power

If Blackstone, Fidelity, and other Wall Street firms end up surpassing Grayscale Bitcoin Trust, will it mark a power shift in which traditional financial giants gobble up or overwhelm crypto startups or focus exclusively on crypto? of companies?

Sohn said: "I think one side of the industry will use traditional financial solutions because they are comfortable with the ETF wrapper and the associated custody guarantees, Perhaps their parent company hopes so, too. "

"But startups and innovators in the encryption industry will always be the force driving the industry forward," he added, "Emerging companies will bring With new perspectives and solutions, it is likely that some industry players will choose this path instead of going through ETF/traditional financial channels. ”

Lawrence believes: “Traditional finance will not completely swallow up crypto startups. "Large companies are generally risk-averse, and their regulatory and compliance approvals take time. He believes that many crypto startups, especially in the decentralized finance subfield, are unlikely to become targets of large traditional financial companies.

Guili also agreed that the future development of cryptocurrency will be dominated by giant traditional financial companies and asset managers like Blackstone and Fidelity, "but smaller crypto startups still play a role Key role - Be a cornerstone of crypto and blockchain innovation and provide alternative product solutions to market segments. ”

A "milestone" in the development of cryptocurrency?

To understand the impact of all this on cryptocurrency What that means for adoption is likely to take some time. Spot market ETFs are still just one piece of the puzzle, with other key pieces still missing. "While new ETFs make it easier to gain exposure to cryptocurrencies, there is a lack of access to them due to regulatory and regulatory issues," d'Anethan said. Due to tax restrictions, actually trading 'physical' Bitcoin remains very difficult. ”

That said, the new spot market ETF "represents a huge milestone in cryptocurrency awareness," d'Anethan continued. Many traditional Market players and funds already have some exposure to cryptocurrencies, “but now you may see other large asset managers and pension funds allocate some AUM to crypto-linked ETFs, which will boost the space and price. ”

Sohn added: “Given the popularity of cryptocurrencies, becoming a solution provider is a great opportunity for issuers, even if there is controversy. employee participation initiatives. ”

Analyst Rasmussen described January 11 as a "moonshot moment," saying "the world's largest financial institutions and the U.S. government are interested in a new asset class." Category gives recognition, which is not common. ”

“But the market is large enough for crypto-native companies and traditional financial institutions to coexist. ”