Does Grayscale charge $400M/year for holding Bitcoin?

Question

So I looked up Grayscales Bitcoin Trust and was surprised that they have an annual fee of 2%:https://grayscale.co/bitcoin-trust/I am not sure if I understand this number correctly.GBTC currently has a market cap of about $21B. If Grayscale charges 2% of that, this would be $400M per year.$400 million for running a simple algorithm that buys/sells Bitcoin based on in/outflow of investors and keeping those bitcoins safe? This seems pretty much to me. Anything I am missing?

csomar · Accepted Answer

It's a lot worse than that: You pay 10-20% premium on GBTC to the spot price of bitcoin. On the long run, the GBTC and spot prices should be the same.So yes, you are getting a bad deal. However, some investors are not comfortable holding balances in Coinbase or some other exchange; and probably do not think about holding bitcoin in a wallet.

nopzor · Answer

one thing you&rsquo;re missing is that gbtc investors also get to bet on the spread. this works on sentinment/momentum.for example, right now the spread is about 4%. it&rsquo;s been as high as 20%+ and can also go below 0%.so if there is a lot of institutional momentum to btc, gbtc has the potential to rise faster than btc itself.

Grustaf · Answer

2% is a pretty standard management fee, so there&rsquo;s nothing outrageous about the size. I&rsquo;m not familiar with their algorithms though, if they simply passively hold bitcoin then it might seem a bit steep.

alexmingoia · Answer

Yup. That&rsquo;s what funds are: A business that charges rich people money to lose their money.

Does Grayscale charge $400M/year for holding Bitcoin?

2% is a pretty standard management fee, so there’s nothing outrageous about the size. I’m not familiar with their algorithms though, if they simply passively hold bitcoin then it might seem a bit steep.

Yup. That’s what funds are: A business that charges rich people money to lose their money.