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

[ArtTimeInvestor]

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]

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.

[ArtTimeInvestor → csomar]

Amazing. So by buying real Bitcoin, you instantly have big advantage over investors in GBTC.

Is this the spread we are talking about?

https://ycharts.com/companies/GBTC/discount_or_premium_to_na...

Looks like it is down to 4% at the moment?

[csomar → ArtTimeInvestor]

Great chart! Yes, looks like the premium was down these days (last few weeks it was insane)

[nopzor]

one thing you’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’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]

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.

[Grustaf → Grustaf]

Ah it’s publicly traded, so they expose bitcoin to everyone. That must have taken a lot of legal work. Plus they’re not charging a performance fee. Seems pretty reasonable to me.

[ArtTimeInvestor → Grustaf]

Why would someone buy Grayscale then and not just hold Bitcoin in their Paypal account for example?

[Grustaf → ArtTimeInvestor]

This fund is probably not for retail investors, i guess pension funds or similar institutions invest in it.

[ArtTimeInvestor → Grustaf]

Pension funds are willing to give a away 2% annually to someone else for holding an asset for them?

[Grustaf → ArtTimeInvestor]

Typically funds will also do a lot of work in selecting the asset, but in this case the hard work is in giving them exposure to an asset they couldn’t otherwise have invested in.

[ArtTimeInvestor → Grustaf]

Why would they not have been able to buy Bitcoin themselves?

[sarosh → ArtTimeInvestor]

There may be issues in their legal structure the prohibit direct investment or their Board feels more comfortable offloading the technology risk to someone else. Alternatively, they may want certain liquidity features (or other options) that may not be directly available.

[Grustaf → ArtTimeInvestor]

Bitcoin is still very esoteric, buying bitcoins is nothing like investing in the stock market. A large (or small for that matter) financial institution probably wouldn't want to buy 10 or 100 m worth of bitcoins from Bitmex.

[chefkoch → ArtTimeInvestor]

I would guess it's a too risky investment for them.

[verdverm → chefkoch]

There's actually a pretty low-risk 40% gain by doing some paperwork and having access to some big player only loans.

See my other comment for a link which describes the play in more detail.

[Grustaf → verdverm]

Starting, not to mention promoting, a large fund takes a lot of work, trust me.

I’m not sure what 40% you are talking about though.

Not to say that Grayscale is really making the world a better place by providing an actually useful service.

[logicslave → ArtTimeInvestor]

Yes, and its a scam. The american people are paying for the fund managers to get rich

[verdverm → ArtTimeInvestor]

https://adventuresincapitalism.com/2020/11/24/why-this-refle...

[ArtTimeInvestor → verdverm]

Is this the spread to NAV you mention?

https://ycharts.com/companies/GBTC/discount_or_premium_to_na...

It seems the spread is down to 4% now.

And it seems people were willing to pay up to 40% on top of Bitcoins value for GBTC. That is crazy ...

[Grustaf → ArtTimeInvestor]

That probably doesn’t directly benefit Grayscale that much though, depending on their fee structure.

[alxmng]

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