Why Grayscale’s Ether ETF Fee Strategy Has Come Under Fire
- Prospective ether ETF issuers have turned in what is likely their final S-1s disclosing fees.
- Grayscale’s fee strategy has raised dust.
- An expert has suggested that Grayscale’s decision may further hamper net positive inflows for ether ETFs.
After a decade of trying, asset managers finally got ETFs backed by crypto assets, specifically Bitcoin , over the line in January 2024 . With the jinx seemingly broken, more spot crypto ETFs look to be on the way, with ether set to be first in line following an SEC decision to approve a required rule change in May 2024.
Ahead of the imminent ether ETF launch, issuers on Wednesday, July 17, submitted what experts believe to be their final S-1 filings, filling all the blanks about how these ETFs would run. However, the excitement over these filings and their implication has been eclipsed by outrage over the fee strategy of one of the prospective issuers, Grayscale.
An Outlier
At 2.5%, Grayscale’s proposed converted ether ETF from its $10 billion ether Trust would have the highest fee of any ether ETF by far. For context, other ETFs’ fees range between 0.19% and 0.25%. You can read the full ETF comparison from my colleague, DailyCoin Reporter Kyle Calvert .
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But Grayscale’s high fee is not what has taken many experts by surprise. The firm had followed a similar playbook when it received approval to convert its Bitcoin Trust to a spot Bitcoin ETF in January 2024, offering a 1.5% fee, over three times more than the competition.
At the time, analysts explained that the asset manager was likely banking on investors staying either because their fund, compared to the rest, already had large liquidity with assets under management at $27 billion or because they could not afford the tax bill that could come from selling their shares. Plus, before converting to an ETF, the firm had charged a 2% management fee, meaning the switch had already hurt their typical bottom line.
So, a similarly high fee was expected with the planned converted ether ETF. Still, many had hoped that fees for a recently introduced mini ether ETF, which would automatically be seeded with 10% of the main Trust’s total capital, would undercut the competition. For many, this move would have allowed Grayscale to have a fighting chance for organic inflows and expected outflows from its larger fund due to higher fees.
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These expectations, however, failed to materialize. Grayscale has kept the fees for its smaller fund at the top of the average spot ether ETF fee range at 0.25%, right alongside big-name players like BlackRock and Fidelity.
Unsurprisingly, the move has left several experts significantly perplexed.
A “Huge Miss”?
“I’m not sure what Grayscale’s strategy is here,” Van Buren Capital General Partner Scott Johnsson asserted in response to the asset manager’s ether ETF fee strategy. The analyst argued that Grayscale seemed to start with the right idea, only to lose the plot at some point.
"Investors selling ETHE are probably not going to be charitable with your mid-price mini option after you stick them with a 10x fee and force them to realize gains. Even the waiver is like wtf. Honestly, they might have screwed themselves worse than GBTC. I didn't think that was possible," he added.Johnsson’s sentiments come as Grayscale’s Bitcoin ETF has lost about 347,000 BTC or more than 55% of its initial Bitcoin holdings of nearly 620,000 BTC since it went live, according to CoinGlass data , largely due to investors fleeing high fees.
The Van Buren Capital GP was not the only analyst to suggest that Grayscale has made a significant misstep as The ETF Store President Nate Geraci quipped that Grayscale’s move was a “huge miss.”
"If you're gonna charge *2.5%* on ETHE, need to undercut market w/ mini trust. Disappointing. Entire pricing strategy around both spot btc eth ETFs seems focused on maximizing short-term revenue vs playing long game," he added.Meanwhile, beyond being a potentially self-sabotaging move, Grayscale’s ETF strategy may also make positive net inflows to spot ether ETFs more difficult to achieve, according to Bloomberg Senior ETF Analyst Eric Balchunas.
“Do these newborns have enough strength to offset those outflows a la btc. Anyway short story is the 2.5% fee made path to a decent net flow number a little harder. We’ll see,” the ETF analyst asserted .
On the Flipside
- Grayscale can reduce their spot ether ETF fees after launch.
- It remains to be seen how investors would react.
Why This Matters
Spot ETFs have been tipped to bring billions of dollars in ether demand. Grayscale’s fee structure, however, suggests that these inflows may have to contend with more significant outflows than expected for a while.
Read these for more on ether ETFs:
Ether ETF Fees Revealed! Issuers File “Final” S-1s with SEC ETFs Will Send Ether to All-Time Highs Above $5,000: Bitwise CIO
Disclaimer: The content of this article solely reflects the author's opinion and does not represent the platform in any capacity. This article is not intended to serve as a reference for making investment decisions.
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