Analysts Question Strategy Behind High Fees Of Grayscale Ethereum Spot ETF: They Seem Focused On 'Maximizing Short-Term Revenue Vs Playing Long Game'

Author: Aniket Verma | July 18, 2024 01:19am

Eric Balchunas, a renowned financial analyst, recently expressed skepticism about the potential success of Grayscale’s Ethereum (CRYPTO: ETH) spot ETF due to its high fee structure.

What Happened: Grayscale submitted updated S-1 filings with the SEC Wednesday, revealing the all-important information about the fund management fee. The digital asset management giant will charge 2.5% for its Grayscale Ethereum Trust, significantly higher than its competitors. A miniature version of the fund, Grayscale Ethereum Mini Trust, will however charge 0.25%.

Balchunas questioned these moves, asking whether the 0.25% fee would be low enough to attract sufficient organic flows to offset what he referred to as “The Big Unlock”.

He further speculated on the ability of new entrants to the market to counterbalance the predicted outflows due to the flagship version’s high fees, drawing a parallel with Bitcoin (CRYPTO: BTC). “Anyway short story is the 2.5% fee made path to a decent net flow number a little harder,” Balchunas feared.

Cheap but not sure cheap enough to move the needle (as most are cheaper and brand name BlackRock is same fee) to attract organic flows to offset The Big Unlock. And do these newborns have enough strength to offset those outflows a la btc. Anyway short story is the 2.5% fee made… https://t.co/0sH0tXrjtL

— Eric Balchunas (@EricBalchunas) July 17, 2024

Another well-known ETF expert, Nate Geraci, called this a “huge miss” by Grayscale, indicating that the mini trust should have been priced much lower. “Entire pricing strategy around both spot BTC & ETH ETFs seems focused on maximizing short-term revenue vs playing long game,” Geraci stated.

Btw, think this is *huge* miss by Grayscale…

If you're gonna charge *2.5%* on ETHE, need to undercut market w/ mini trust.

Disappointing.

Entire pricing strategy around both spot btc & eth ETFs seems focused on maximizing short-term revenue vs playing long game. https://t.co/8DE1UIlCIo

— Nate Geraci (@NateGeraci) July 17, 2024

See Also: Mark Cuban: Trump’s Re-Election Won’t Directly Impact Bitcoin’s Price

Why It Matters: These criticisms come even as other funds, including the one by BlackRock, are priced much lower. The ishares Ethereum Trust will charge 0.25%, and so will the ETFs by Fidelity and Invesco.

Grayscale, which already operates the Grayscale Bitcoin Trust (NYSE:GBTC), faced significant outflows pressure after launch due to its 1.5% fees, highest among all spot Bitcoin ETFs. Since launch, it has recorded net outflows of $18.69 billion as of this writing, according to SoSo Value.

Grayscale’s flagship Ethereum Trust, along with the mini Trust, are expected to go live for trading by July 23.

Price Action: At the time of writing, Ethereum was exchanging hands at $3,423.79, down 1.55% in the last 24 hours, according to data from Benzinga Pro.

Illustration via Shutterstock.

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