Summary GBTC, now the third-largest Bitcoin ETF by AUM, suffers from its uncompetitive 1.50% expense ratio, despite recent AUM growth during a Bitcoin rally. Grayscale’s low-cost ETF, BTC, launched in August 2024, temporarily reduced GBTC’s AUM by transferring 10% of its assets. AUM are now back to where they were in January 2024. IBIT remains my top choice for Bitcoin exposure due to its low fees, strong liquidity, and growing AUM driven by BlackRock’s marketing efforts. I recommend to HOLD GBTC only for short-term plans. Long-term investors should choose IBIT for better performance and lower costs. It’s been almost a full year since the Grayscale’s Bitcoin Trust ( GBTC ) was converted to an exchange-traded fund. In this article, I will evaluate GBTC to determine whether it is an efficient vehicle for investors seeking Bitcoin exposure in their portfolios. Along with examining the ETF's technical details, I will analyze its Assets Under Management ((AUM)) trends over the past year and cover this ETFs’s unique history. This article is part of my “Bitcoin ETFs Showdown” series, where I analyze several Bitcoin ( BTC-USD ) ETFs and compare them to the iShares Bitcoin Trust ETF ( IBIT ). This series does not have the objective to discuss whether entering a trade in Bitcoin is a good idea at current prices. Rather, it focuses on analyzing Bitcoin ETFs for investors who are interested in gaining exposure to Bitcoin. Investors who are not familiar with Bitcoin should first do their own research and understand whether investing in this cryptocurrency is for them. Readers can find my thoughts about Bitcoin as an asset class on my profile . GBTC: ETF profile and AUM evolution The GBTC ETF has the following key metrics at the time of writing: Yearly Expense Ratio of 1.50% Assets Under Management of $ 19.2 Billion - making it the third largest Bitcoin ETFs at the time of writing, behind IBIT and the Fidelity Wise Origin Bitcoin Fund ETF ( FBTC ) Average Bid/Ask Spread of 0.02% Average Daily Volume of $ 210 Million The fund uses Coinbase as a custodian for its Bitcoin, exactly like IBIT and other major Bitcoin ETFs (with the notable exception of FBTC ) GBTC’s biggest issue in my opinion is its uncompetitive expense ratio, which is a legacy from before its conversion to an ETF in January 2024 — a topic I’ll explore further later in this article. In my view, this high expense ratio has been the primary driver of outflows the fund experienced in its first few months as an ETF, as investors gained access to more efficient, low-cost Bitcoin ETF alternatives. GBTC, IBIT and other Bitcoin ETFs - Key Metrics (Author's work based on Seeking Alpha data) The table above compares GBTC with other major Bitcoin ETFs I covered in this “Bitcoin ETFs Showdown” series. While GBTC experienced significant outflows in its early months, its AUM has actually grown over the past four months, increasing by approximately 33%. As a result, GBTC’s current AUM is nearly identical to its level at the time of its ETF conversion in January 2024 . I find this dynamic interesting, as this is the first time I have noticed GBTC AUM growing since I started covering this ETF in May 2024. I attribute this growth over the past four months to two factors. First, Grayscale's launch of the low-cost Grayscale Bitcoin Mini Trust ETF ( BTC ) in August, which was funded by transferring 10% of GBTC’s assets. This transfer temporarily “suppressed” GBTC’s AUM figures in August. Second, retail investor euphoria fueled by Bitcoin's bullish rally from early November through late 2024 contributed significantly to the recovery in AUM. I will continue monitoring GBTC’s AUM trends in the coming months, as I see them as a key indicator of retail investors’ interest in Bitcoin as an asset class. The recent Bitcoin bull run was enough to reverse GBTC’s AUM decline, despite its uncompetitive expense ratio. It will be interesting to see if a potential Bitcoin bear market triggers disproportionately higher outflows from GBTC compared to other Bitcoin funds. Another metric that I believe is worth calling out from the above table is the Average Daily Volume. This has been dropping consistently in the past 3 months, with GBTC registering a decrease of almost -80% in volumes. While volumes remain sizable in absolute terms, at above $ 200 Million, they are now significantly less than the almost $ 1 Billion this ETF was registering in August 2024. In my view, this trend suggests that active traders are shifting from GBTC to BlackRock’s IBIT ETF for Bitcoin trading . Notably, IBIT is the only Bitcoin ETF to report an increase in Average Daily Volume, rising nearly 30% between August and December 2024. Overall, despite AUM growth over the past four months, GBTC has fallen from the largest Bitcoin ETF by AUM in January 2024 to third place as of now. Additionally, the sharp decline in its average daily volume could eventually impact its liquidity, particularly in terms of the bid/ask spread. GBTC: A brief history of Bitcoin’s first fund and what’s next Launched in 2013, GBTC was one of the first global investment funds dedicated to Bitcoin. As such, it served as one of the the primary ways for investors to access Bitcoin through traditional brokerage accounts for years. GBTC has historically almost always traded at a discount against its Bitcoin holdings, given regulatory uncertainty about Bitcoin that made it uncertain whether investors would be able to eventually cash in the Bitcoin held by the fund. Only in January 2024, more than 10 years after its launch, the GBTC fund was converted into an ETF and its discount against Bitcoin holdings went to zero. Charging a 1.50% annual fee made sense, in my opinion, before Bitcoin ETFs existed. At the time, investors had few alternatives beyond cryptocurrency exchanges, and GBTC was a truly unique product. However, after Bitcoin ETFs were approved in early 2024, this expense ratio became very uncompetitive, as it is more than five times higher than what direct competitors charge and even exceeds the fees of most leveraged Bitcoin funds. Grayscale chose not to change their expense ratio to match that of other Bitcoin ETFs, even after seeing significant outflows from GBTC. So far, the strategy appears to have worked for Grayscale: GBTC generated approximately $285 million in fees during its first year as an ETF (1.50% of $19 billion). Had the fund reduced its annual expense ratio from 1.50% to 0.25% (matching that of IBIT), its AUM would have needed to grow to $114 billion to match this revenue. With the combined AUM of the top three Bitcoin ETFs currently around $90 billion, it seems highly unlikely that Grayscale would have benefited from such a move. From the perspective of investors, though, things are different. I see virtually no reason to choose GBTC to get exposure to Bitcoin - something I will cover later in the article. BTC: Grayscale’s low cost Bitcoin ETF Grayscale recently launched the Grayscale Bitcoin Mini Trust ETF, a low-cost Bitcoin ETF that began trading in August 2024. The Mini Trust was funded by transferring 10% of GBTC’s assets , resulting in a distribution of Mini Trust shares to existing GBTC shareholders. This fund has a 0.15% expense ratio, making it the least expensive Bitcoin ETF available today in the market in terms of fees. However, given its limited size, BTC has a spread of 0.05% at the time of writing - which is more than double that of GBTC or IBIT. In my view, Grayscale’s decision to launch the Grayscale Bitcoin Mini Trust ETF ( BTC ) reflects a clear strategy: acknowledging GBTC's uncompetitive expense ratio while avoiding a reduction in the lucrative fees it generates. Instead, Grayscale has opted to introduce a lower-cost alternative. Considering the recent launch of BTC and the significant inflows GBTC experienced during the last Bitcoin bull run despite its high fees, it seems highly unlikely that Grayscale will lower GBTC’s expense ratio. For now, maintaining this revenue stream appears sustainable and strategically sensible for Grayscale. Why IBIT remains my preferred choice over GBTC (and BTC) IBIT vs. GBTC, past 1 year performance (Seeking Alpha) In my first article about GBTC, I highlighted how its uncompetitive expense ratio would likely hinder its long-term performance in favor of competitors like BlackRock’s IBIT. This prediction has played out, with IBIT now the largest Bitcoin ETF and more than twice the AUM of GBTC. More importantly from the perspective of investors, GBTC has lagged behind IBIT in terms of performance for the last year, as shown by the above chart. IBIT vs. GBTC, qualitative assessment (Author's work) The table above provides a qualitative summary of IBIT and GBTC as Bitcoin ETFs. My top choice for Bitcoin exposure today remains the IBIT ETF. It offers a competitive expense ratio and strong liquidity. Most importantly, IBIT has benefited from a virtuous cycle in the past few months: as one of the most liquid Bitcoin ETFs, backed by BlackRock’s robust marketing efforts, it continues to attract more investors. This inflow drives AUM growth and further enhances its liquidity metrics. I see the gap between IBIT and other ETFs, including GBTC, only widening in time. For investors currently holding GBTC, it may make sense to stick with this fund if they have a short- or medium-term exit strategy for their Bitcoin position. As a result, I maintain a HOLD rating for GBTC. For long-term Bitcoin holders, however, I recommend buying IBIT or switching to IBIT if they already hold GBTC as I do not see likely that Grayscale will ever reduce the fund’s expense ratio. I do not recommend switching to BTC either, despite its competitive expense ratio, as its bid/ask spread is more than double that of IBIT. Should the situation change - for instance, if Grayscale allocates more of GBTC’s assets to BTC - I would reconsider BTC as a more viable option. Conclusion The GBTC ETF has proven very lucrative for its issuer, generating more than $ 250 Million in fees for Grayscale during its first year existing as an ETF. However, due to its uncompetitive expense ratio - at 1.50% - I still cannot recommend this fund as an efficient way to get exposed to Bitcoin. Grayscale's launch of the low-cost ETF "BTC" suggests, in my view, that a reduction in GBTC's expense ratio is unlikely in the foreseeable future. Therefore, I recommend that investors looking for long-term Bitcoin exposure avoid GBTC. My HOLD rating applies only to investors already holding GBTC who intend to take profits in the short or medium term. Risks of investing in Bitcoin and GBTC Investing in Bitcoin remains a speculative bet on its potential to evolve into a global reserve asset. While I find this opportunity compelling, it represents the primary risk for investors considering GBTC or any Bitcoin ETF and requires careful consideration. Another key risk for Bitcoin ETFs is their reliance on custodians. Funds like GBTC entrust custodians such as Coinbase to safeguard their Bitcoin holdings. Any fraudulent activity or security breach by the custodian could result in substantial losses for investors. GBTC's dependence on a single custodian further amplifies this risk. For GBTC as a Bitcoin ETF, an additional risk lies in its high expense ratio, which will inevitably lead to underperformance compared to lower-cost Bitcoin ETFs. Furthermore, if GBTC experiences further outflows, its bid/ask spread could widen, potentially causing losses for investors looking to exit their positions in the future.
