Grayscale’s High Fees Rake in More Cash Than All Other Bitcoin ETFs—Here’s Why Investors Stay

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Why Grayscale’s <a href="https://bbg-news.com/btc-usd/">Bitcoin</a> Trust still dominates ETF revenue in 2025

Among financial institutions throughout history, only a select few have navigated the rough seas of competition with the unwavering determination shown by Grayscale Bitcoin Trust (GBTC). Established in 2013 via private placement, GBTC was one of the first to offer regulated Bitcoin investment. This allowed investors to capitalize on Bitcoin’s rapid growth without the risks associated with personal digital wallets or unregulated trading platforms.

On January 11, 2024, I witnessed a significant milestone as the Bitcoin ETF I was analyzing successfully transitioned into its final form following a historic win against the Securities and Exchange Commission (SEC). This breakthrough signified a critical turning point in the SEC’s stance towards ETFs, recognizing their potential to provide lower operational costs and improved tax efficiency compared to conventional funds.

Regardless, Grayscale Bitcoin Trust’s financial strength stands out, earning approximately $268.5 million annually, more than the total annual revenue of all other US spot Bitcoin ETFs combined ($211.8 million), even after experiencing a significant reduction in its holdings (over half) and $18 billion in outflows since early 2024. This isn’t just a temporary victory due to inertia.

The numbers paint a surprising picture. Despite BlackRock’s iShares Bitcoin Trust (IBIT) having a management fee of 0.25% and a higher asset under management (AUM) of $56 billion, it generated an impressive $137 million in 2024. This was achieved alongside massive inflows of $35.8 billion and daily trading volumes of over $1 billion within weeks of its launch.

On the other hand, GBTC, with a significantly higher expense ratio of 1.5%, generates more revenue. Even though it experienced a staggering $17.4 billion in outflows last year, including a single-day loss of $618 million on March 19, 2024, it still leads in revenue. This is mainly due to investors seeking lower fees or capitalizing on the trust’s historical discount to net asset value (NAV), which dropped from 50% to nearly zero by July 2024.

The conflict between who controls the income and the movement of funds away from a given area needs closer examination. This reveals the complex interplay of investor attitudes, market trends, and Grayscale’s strategic tenacity.

The struggle for income control versus capital outflow requires careful investigation, exposing the intricate ballet of investor sentiments, market fluctuations, and Grayscale’s tactical strength.

Although GBTC managed to generate $268.5 million with an asset under management (AUM) of $18 billion, despite substantial outflows, it suggests a more complex story: tax complications and embedded inertia within companies, family offices, and institutions. This inflexibility, caused by tax constraints and corporate guidelines, becomes increasingly apparent. The $100-billion market for spot Bitcoin ETFs highlights the importance of this competition, with Grayscale’s revenue leadership likely to transform as rivalry escalates.

How does GBTC maintain its dominant revenue position amidst fierce competition? Could it be due to the mathematical advantage of charging substantial fees on a sizable Assets Under Management (AUM), the steadfast allegiance of investors hardened by market battles, or perhaps the less visible impact of tax complexities that keep them invested?

Delving into this topic reveals the workings behind GBTC’s reign and the influential trends determining the path of cryptocurrency investments. The solution stems from a powerful mix of past events, strategic moves, and the unwavering trust investors place in a colossus that persists defying all resistance.

Grayscale’s high-fee revenue engine

The main reason for GBTC’s financial superiority is its high expense ratio of 1.5%, which stands significantly higher compared to competitors such as IBIT, FBTC, Bitwise, and Franklin Templeton, who all have expense ratios of 0.25%, 0.24%, and 0.19% respectively.

When put to work on assets totaling 17.9 billion dollars, this fee generates around 268.5 million dollars each year. This figure surpasses the consolidated yearly income of 211.8 million dollars from all U.S. spot Bitcoin ETFs combined, which collectively manage approximately 89 billion dollars in assets.

The president of ETF Store, Nate Geraci, commented on X: “GBTC continues to generate more revenue than all other ETFs put together… And it’s not even close.” This significant financial advantage persists, despite a total outflow of $21 billion since January 2024, which includes an average daily loss of approximately $89.9 million. This demonstrates the immense impact of high fees on a large investment base.

The structure of fees in GBTC serves as both a strength and a weakness. Prior to its ETF conversion, GBTC’s 2% fee was justified due to its unique position as the only US vehicle offering Bitcoin exposure within traditional investment portfolios. However, after the conversion, the 1.5% fee is facing criticism, with Bryan Armour, director of passive strategies research for Morningstar, anticipating ongoing withdrawals as investors seek out less expensive alternatives.

In response to Grayscale’s existing product (GBTC), Grayscale introduced the Grayscale Bitcoin Mini Trust (BTC) in March 2025, charging a fee of only 0.15% (the lowest among US spot Bitcoin ETPs). This new fund was initially seeded with 10% of GBTC’s Bitcoin holdings ($1.7 billion AUM), attracting $168.9 million in investments from cost-conscious investors. Despite bringing in a substantial amount, the Mini Trust generates less annual revenue per dollar of assets under management ($2.55 million) compared to GBTC’s $268.5 million, underscoring GBTC’s continued strength and leadership in the market.

Grayscale’s two-pronged approach (earning income with high-cost GBTC and keeping users with low-cost Mini Trust) suggests a complex protection plan, yet GBTC’s high fees continue to stand firm, ensuring its financial dominance for the time being.

Grayscale uses both high and low cost products (GBTC and Mini Trust) to protect itself in different ways. However, GBTC’s high costs remain unchanged, making it a top revenue earner for now.

Legacy and loyalty

The dominance of GBTC’s earnings is not just about the mathematics of fees, but also its rich history, strong investor loyalty, and complex tax issues that bind investors to it. Since 2013, Grayscale has led the way in regulated Bitcoin investment, navigating regulatory storms to become the first publicly traded Bitcoin fund in 2015 and the largest spot Bitcoin ETF by Assets Under Management ($26 billion) upon its listing on NYSE Arca in 2024.

In August 2023, it scored a legal triumph against the US SEC, paving the way for the approval of spot Bitcoin ETFs. This landmark event has strengthened its reputation as a trailblazer in the field. The impact of this legacy is evident among institutional and accredited investors who either invested during its private placement phase or at significant discounts to net asset value (NAV). This shared history has created an enduring bond between them and the company.

The impact of tax implications is subtle yet powerful for early investors of GBTC. In 2013, when Bitcoin was valued at around $800, many investors bought shares. Fast forward to May 2025, and the price of Bitcoin has risen significantly, averaging around mid-$90,000. This dramatic increase (approximately 120-fold) has resulted in substantial unrealized capital gains. Consequently, selling these shares could prove expensive due to the high tax implications.

A person who bought 100 shares of GBTC back in 2015 for $10 per share and now finds those same shares valued at $400 each has amassed a capital gain of approximately $39,000. If they choose to sell these shares to invest in lower-cost ETFs like IBIT or FBTC, they could potentially face a tax bill of around $7,800 if they fall under the long-term capital gains rate for high-net-worth individuals (20%), or $5,850 if their rate is 15%, which is more common among other investors. This potential tax liability often serves as a deterrent for selling, especially for long-term holders with taxable accounts.

From another perspective, individuals who own GBTC within tax-exempt accounts like IRAs or 401(k)s can postpone realizing gains and, specifically in Roth IRAs, completely sidestep them, making GBTC a more appealing choice for traditional investors hesitant to make changes due to these tax benefits.

Psychological elements intensify these obstacles. The fear of loss (refusing to recognize taxable profits) and loyalty towards Grayscale’s brand keep investors from leaving a product that has survived Bitcoin’s volatility. The narrowing Nav discount (from 50% in July 2024 to almost zero) triggered outflows as arbitrageurs cashed out. However, dedicated holders persist, encouraged by their trust in Grayscale’s custody services through Coinbase Custody, which managed $18.08 billion in assets under management (AUM) in May 2024. Its investor base, consisting of crypto-native institutions, hedge funds, and retail clients via platforms such as Fidelity and Schwab, appreciates its convenience (no need for crypto wallets) and regulatory reputation.

In contrast to IBIT and FBTC that are attracting fresh funds with reduced fees and improved liquidity, GBTC maintains a unique position among investors who view it as a battle-hardened titan. The former Grayscale CEO, Michael Sonnenshein, implies that outflows have reached a balance, indicating a stable core. This stability is being upheld by tax complications and historical reputation, which are helping to retain investors. In a rapidly evolving market, GBTC’s rich history, fortified by tax obstacles and investor trust, serves as its protective barrier, safeguarding its revenue dominance against the unyielding competition from emerging rivals.

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2025-05-02 21:11