Purpose Investments, Grayscale defend their higher fees as outflows continue

As US spot bitcoin ETFs continue to notch net inflows weeks after their launches, some firms with higher-cost offerings have seen declining assets under management.

While some crypto fund issuers have lowered their European product fees in response to the novel US spot bitcoin ETF launches, others in Canada and the US are standing pat for now.

Executives at Purpose Investments, ProShares and Grayscale Investments, for example, have doubled down on their funds’ value propositions in recent weeks despite the firms’ bitcoin funds bleeding assets.

US spot bitcoin ETF issuers sought to beat out competitors by offering the products at a low price point. Excluding Grayscale Investments’ Bitcoin Trust ETF (GBTC), which carries a 1.5% management fee, the US spot bitcoin funds have fees ranging from 0.19% to 0.30%.

Net inflows into US spot bitcoin ETFs hit a weekly high of $1.2 billion last week, according to BitMEX Research, as GBTC outflows continued to slow.

Canada-based Purpose Investments, however, has endured outflows of $168 million so far this year as of Feb. 9, CoinShares data shows.

Money has flowed out of GBTC every day since the fund converted to an ETF on Jan. 11, with outflows since that date so far totaling nearly $6.5 billion.

Grayscale, Purpose standing their ground

Dave LaValle, Grayscale’s global head of ETFs, said during a Tuesday panel at the Exchange ETF conference in Florida that the company is “very comfortable where we are” on its 1.5% annual fee.

GBTC launched in 2013 and grew to $28 billion in assets before converting to an ETF. It now has about $23 billion in assets — roughly five times the size of BlackRock’s iShares Bitcoin Trust (IBIT), which is the second-largest spot bitcoin ETF.

“Fee is one aspect of a decision that clients can make, and if fee is most important to them, then that’s their choice,” LaValle added during the discussion. “But there are other considerations around implicit cost and liquidity and track record and the size of the fund that are also very important to ETF investors.”

Purpose Investments launched the world’s first ETF backed by physically settled bitcoin in February 2021 on the Toronto Stock Exchange. The Purpose Bitcoin ETF (BTCC) eclipsed $740 million in assets under management a month after coming to market and closed 2023 with more than $1.5 billion in assets.

BTCC had tallied $480 million of inflows in 2023, according to a report published last week by Trackinsight, before seeing outflows in 2024.

Vlad Tasevski, Purpose Investments’ chief operating officer and head of product, said the recent BTCC outflows are not necessarily going to US spot bitcoin ETFs.

He defended the product’s 1.5% management expense ratio, noting that the company does not currently have plans to reduce the price.

“We review this on an ongoing basis,” Tasevski told Blockworks. “We need to see how things are going to develop, but I think we bring a strong value proposition and a strong track record.”

The executive noted the Purpose fund’s dual-custody model — the BTC is held by Gemini Trust Company and Coinbase — as a differentiator from most of the US funds. He also touted BTCC’s history of “supporting a high volume base” and the fact that the ETF is offered in both CAD- and USD-denominated units.

“The fees are just one factor, and right now at this stage of the asset class, they are definitely not the most important factor,” Tasevski said.

Sumit Roy said though he doesn’t think the launch of US spot bitcoin ETFs makes Canada-based products obsolete, they might face pressure to ultimately lower their fees.

“These ETFs could still be attractive to Canadian investors who find it easier to buy ETFs in Canada versus those listed in the US,” Roy said. “Purpose also offers a currency hedged version of its spot bitcoin fund, which insulates Canadian investors from fluctuations in the USD-CAD exchange rate.”

The 3iQ CoinShares Bitcoin ETF (BTCQ), which hit the market in April 2021, is reviewing its current fee structure, 3iQ research head Mark Connors told Blockworks.

“Part of that process includes the regular enhancements made to our trading and operations processes to reduce other costs for investors, such as tracking error,” Connors said in an email. “These and other factors such as the regular engagement with our regulator and our unique belt-and-suspenders approach in our custodian/sub-custodian model adds to client protections to reduce other costs and risks.”

Another fund that has been hurt, from a flows perspective, by US spot bitcoin ETFs is the ProShares Bitcoin Strategy ETF (BITO). The product has an expense ratio of 0.95%.

The first US ETF to hold bitcoin futures contracts, BITO has endured outflows of $376 million since spot funds launched on Jan. 11, according to ETF.com. It had enjoyed net inflows of $506 million in 2023.

Simeon Hyman, global investment strategist at ProShares, said in a Bloomberg TV interview last month that the bitcoin futures market is “mature, liquid and regulated,” but adding “there are a lot of things we don’t know about the spot market.”

BITO also benefits from being a fund filed under the Investment Company Act of 1940, Hyman argued. The US spot bitcoin ETFs are filed under The Securities Act of 1933.

“It has certain investor protections including independent board oversight and asset safekeeping requirements…the new spot bitcoin ETFs are not obligated to provide,” he told Blockworks.

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