Grayscale tries to hold lead in ether ETF battle

For cryptocurrency company Grayscale, it’s deja vu in the ETF market.

Tuesday, first spot ether Exchange-traded funds are hitting the U.S. The ETFs will invest directly in ether, the cryptocurrency used on the Ethereum network, allowing investors to buy cryptocurrencies the same way they buy stock or bond index funds.

Founded in 2013, Grayscale has spent years building a trust that holds $9 billion worth of Ethereum. The trust has now been converted into an ETF and is one of two ETFs offered by the company. Grayscale is a subsidiary of Barry Silbert’s crypto conglomerate Digital Currency Group.

With the SEC clearing the way for an ETF, Grayscale will have many competitors and investors will be shopping around for the lowest fees. Fidelity Investments, Franklin Templeton, Black Rock and Invesco have already brought their own spot Ethereum ETFs to market.

The same thing happened in January. Bitcoin The ETF’s approval prompted many investors to flee Grayscale’s products for cheaper alternatives.

On its first day of trading on Tuesday, Ethereum ETF trading volume surpassed $1 billion. J.P. Morgan Analysts expect net sales of $104 million.

While new offerings saw inflows, the Grayscale Ethereum Trust (ETHE) saw $485 million in redemptions, with JPMorgan attributing the outflows to investors switching to cheaper alternatives or using conversions to ETFs to take advantage of increased liquidity compared to the previous trust structure.

In Bitcoin ETFs In the market, Grayscale is struggling to cope with increasing competition.

Grayscale began trading shares in the Bitcoin Trust (GBTC) in 2015 as a closed-end fund that Morningstar’s Brian Armour previously described as “a kind of monopoly.” In the first seven months of trading after converting the trust to an ETF, the company experienced nearly $18.7 billion in outflows, according to JPMorgan, mainly because its management fee of 1.5% was significantly higher than competitors.

May, Black Rock Overtaken Grayscale is growing its assets with the iShares Bitcoin ETF. The BlackRock ETF charges 0.25% excluding waivers.

Grayscale is offering ETHE on Ethereum with fees of 2.5%, 10 times higher than the second highest fee among newly listed funds. Grayscale is also spinning off 10% of its assets to form a mini-Ethereum ETF designed for retail clients. Grayscale Ethereum Mini Trust (ETH) It’s a budget product with fees of 0.15%, the lowest of any new ETF.

Fees for other cards in this category range from 0.19% to 0.25%. Most issuers will waive their fees initially, and some will do so for up to a year.

Grayscale said ETHE trading volume reached nearly $500 million on Wednesday, its second day of trading, and total ETH trading volume was just over $100 million, up about 54% from Tuesday’s levels.

David LaValle, Grayscale’s global head of ETFs, told CNBC in a statement that ETHE “has been, and will continue to be, a reliable and efficient tool for investors interested in gaining exposure to Ethereum in the form of a regulated U.S. security.”

Laval added that the company’s Ethereum Trust has generated 61% annualized returns since going public in June 2019, and that its mini Ethereum ETF “came to the market with the lowest top-line expense ratio.” Of the company’s two products, Grayscale boasts the highest and lowest management fees.

In the “big picture,” Laval said, the $1 billion in first-day volume is “a testament to the many industry players who have come together to support investors and the Ethereum ETP ecosystem.”

It will be up to former ETF managers to figure out how to navigate the new world of ETFs. Goldman Sachs Peter Mintzberg was appointed CEO of Grayscale in May, just days before BlackRock overtook Grayscale’s Bitcoin ETF in terms of assets.

Mintzberg replaces Michael Sonnenschein, who led Grayscale Investments for a decade, a job that took him around the globe, from the World Economic Forum in Davos to nearly every major cryptocurrency conference.

During Sonnenschein’s tenure, the company grew to become the world’s largest Bitcoin The Fund: At its peak, assets under management were $43 billionGrayscale held a monopoly on crypto trust management and had significant pricing power, and was seen by many as the crown jewel of Silbert’s crypto empire.

In what marked a landmark moment for the cryptocurrency industry, Sonnenschein led Grayscale to victory in a legal battle with the Securities and Exchange Commission over its application to convert GBTC into a spot Bitcoin ETF. The victory paved the way for broader approval of spot Bitcoin ETFs and helped establish cryptocurrencies as a legitimate asset class.

While SoneShine has clarified Grayscale’s legal path, the company’s competitive advantage is murkier than ever. press release Sonnenschein, who announced his resignation in May, said he was leaving to “pursue other interests.” His LinkedIn profile lists him as the former CEO of Grayscale and as an adviser to several companies. Sonnenschein did not respond to a request for comment.

Silbert stepped down as Grayscale’s chairman in December and was replaced by DCG’s chief financial officer, Mark Schifke. Mintzberg will officially become CEO in mid-August. Grayscale’s chief financial officer, Edward McGehee, will run the company on an interim basis.

Besides Grayscale, DCG was hit hard in the aftermath of the 2022 cryptocurrency crash, and its lending business Genesis was accused by the SEC of selling unregistered securities and ultimately filed for bankruptcy. In May, New York Attorney General Letitia James reached a $2 billion settlement with Genesis to repay investors who were defrauded.

Despite its challenges, Grayscale has benefited from the crypto market recovery over the past 18 months. Bitcoin’s price has risen fourfold since the end of 2022, while GBTC has fared even better, jumping more than sevenfold. Ethereum has risen nearly threefold during the same period.

DCG’s first-quarter revenue increased 51% year over year, and the company says it has paid down all of its debt, with only its third-party debt to Genesis remaining.

Grayscale is looking to jump on the new craze. press release “We are seeing increased customer demand as the crypto asset class matures,” it said on Tuesday.