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Why Grayscale’s Fees for Its $10 Billion Ethereum ETF Are a ‘Non-Starter’ for Investors – DL News
- Grayscale Investments keeps spot fees on its Ethereum ETF at 2.5%.
- It is 10 times more expensive than its competitors’ rates.
- The ETF is likely to experience significant outflows at launch.
Here are the results: Grayscale Investments will continue to charge a 2.5% fee to holders of its Ethereum trust when it converts to an exchange-traded fund.
This is a huge fee compared to other potential Ethereum ETFs, which are all ready for launch July 23rd.
“Grayscale is not lowering its fees at all,” says Eric Balchunas, an analyst at Bloomberg Intelligence ETF. he wrote on X, noting that the company’s ETF will be about 10 times more expensive than its competitors.
“It will probably cause some outrage,” Balchunas added.
For comparison, Ethereum ETFs issued by BlackRock and Fidelity Investments will each have a fee of 0.25%, VanEck and Bitwise will each charge 0.20%, and Franklin Templeton will charge 0.19%.
Inflows and outflows
Grayscale’s case is unique in that it is not creating a new fund from scratch, but is converting its existing Ethereum Trust (ticker ETHE, which holds nearly $10 billion in assets) into an ETF.
The trust was designed so that investors could create new shares, but not redeem them. Despite this, the trust was long popular because it was one of the few ways for Wall Street investors to gain exposure to Ethereum.
And since it was the only game out there, Grayscale could get away with its 2.5% commission.
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But once the trust transforms into a fund (at the same time as all other Ethereum ETFs launch), investors will finally be able to redeem their shares.
And with more Ethereum ETFs set to launch soon, Grayscale risks seeing outflows from its fund into cheaper alternatives.
The same thing has happened with spot Bitcoin ETFs: Grayscale has seen more than $18 billion in outflows since converting its Bitcoin trust into an ETF in January.
Meanwhile, Bitcoin ETFs from BlackRock and Fidelity have amassed more than $30 billion in assets.
Grayscale did not respond to a request for comment.
High commissions and no returns
In parallel with the ETHE conversion, Grayscale is launching a separate Ethereum spot ETF, called the mini Ethereum ETF. The mini fund will charge smaller fees, at 0.25%, and will be funded with 10% of ETHE assets at launch.
The move “should help alleviate some of Grayscale’s likely outflows,” said James Seyffart, a Bloomberg Intelligence ETF analyst. published on X.
But not everyone is convinced.
“There is one huge idiosyncratic factor with Ethereum that will impact demand and that is staking,” said Adam Morgan McCarthy, an analyst at crypto data firm Kaiko Research. DL News.
When using cryptographic infrastructure, Ethereum holders can lock their Ether into the network, a process called staking, to receive a 3% return. But Ethereum ETFs won’t give holders that opportunity.
“The value proposition for a crypto-native fund holding ETHE is hard to see when these funds can redeem shares and buy Ether to invest in return, rather than paying high fees to stay in Grayscale’s fund,” McCarthy said.
“Even paying 0.2% without the staking element seems impossible to me,” he added.
McCarthy noted that since Ethereum enabled staking relatively recently, in 2022, it is likely that some ETHE investors are still waiting to exit the fund and lock up their Ether in staking protocols.
“We expect outflows from ETHE and some reallocation into new funds that are launching with waivers and low fees,” McCarthy said.
“But a good portion of the outflows will exit the market altogether,” he added.
Tom Carreras is a market correspondent at DL News. Have a Grayscale and Ethereum ETF tip? Contact us at tcarreras@dlnews.com