In the first quarter of 2024, Grayscale, the company behind the world’s largest Bitcoin ETF, saw flat revenues despite continuous outflows from its popular fund. The Grayscale Bitcoin Trust (GBTC) netted $156 million between January and March, similar to its Q4 2023 figure. This revenue contributed to Digital Currency Group (DCG)’s total revenue of $229 million, an 11% increase from the previous quarter. The gains were primarily driven by Foundry and Luno, Grayscale’s subsidiaries in the mining pool and investment platform sectors, respectively. Despite the expected outflows and increased competition under the ETF wrapper, revenue attributable to GBTC exceeded expectations.
Grayscale’s decision to convert GBTC into a Bitcoin spot ETF on January 11 led to a reduction in the management fee from 2% to 1.5%, aiming to address concerns of being “exploitative” to critical investors. However, the fund faced strong competition from competitors with significantly lower fees, such as BlackRock and Fidelity, which hindered new investments in GBTC. As a result, the outflows from the fund have been significant, causing a decrease in the total BTC holdings from 619,000 BTC to 291,790 BTC by the end of the quarter. Most of Grayscale’s investors are long-term holders who have chosen to sell their Bitcoin as the asset price increased, leading to regular outflows.
Despite the outflows, Grayscale experienced its first net inflow day since January 11 at the end of the quarter. The company’s assets under management (AUM) fell from $30 billion to $18 billion, mainly due to the increase in the value of its existing BTC holdings. BlackRock’s iShares Bitcoin Trust (IBIT) has almost caught up to GBTC in size, holding 273.25k BTC as of May 8, according to on-chain data. DCG’s revenue rose by 51% year-over-year compared to Q1 2023, coinciding with Bitcoin’s price increase of 125% over the same period.
Although Grayscale has applied to launch an Ether (ETH) spot ETF, regulatory approval is uncertain, with analysts expressing doubts about its chances. The company recently withdrew its application to launch an Ether futures ETF, indicating challenges in obtaining regulatory clearance for new ETF products. Grayscale is facing tough competition in the Bitcoin ETF market as other established players introduce products with lower fees, attracting investors away from GBTC. Despite the challenges, Grayscale continues to navigate the evolving cryptocurrency landscape, focusing on diversifying its offerings and adapting to regulatory requirements to maintain its position in the market.
