BlockFi’s Bitcoin Trust Takes Aim at GBTC

Crypto lender BlockFi has launched its bitcoin trust with an annual fee that falls 0.25% below what industry-leader Grayscale Bitcoin Trust (GBTC) charges investors. 

With a 1.75% management fee, the fund started taking subscriptions last Friday and the fund has nearly $30 million in assets under management, according to its website. Roughly six to 12 months from now, the trust should be available on over-the-counter markets making it tradable through brokerage accounts, Prince said. 

The company’s joins Bitwise and Osprey Funds in competing with Grayscale’s dominance in the bitcoin trust market. (Grayscale is owned by CoinDesk parent company Digital Currency Group). 

BlockFi will also be competing against Grayscale on partnerships with institutionally trusted brands. 

The fund’s assets are custodied by Fidelity Digital Asset Services, Davis Polk & Wardwell will act as BlockFi’s legal counsel in connection with the trust, Coin Metrics will provide index and pricing data, and Grant Thornton will serve as the fund’s auditor. BlockFi will be announcing a partnership with a broker-dealer before the shares are publicly traded.

Prince couldn’t say whether the shares would trade at a premium to the spot price of bitcoin as Grayscale’s trust does, but James Seyffart, ETF research analyst at Bloomberg Intelligence, said there is little reason to think it wouldn’t because typically there are not enough shares in funds to meet the demand. BlockFi could pull in a significant number of retail users that are already using the firm’s other bank-like products, Seyffart added. 

“If you’re on BlockFi they can pull in some of their clients that are using them for the high interest rate accounts, whether it’s on crypto or USDC,” James Seyffart, ETF research analyst at Bloomberg Intelligence, said.

If the U.S. Securities and Exchange Commission (SEC) ends up approving a bitcoin ETF, the value proposition for BlockFi’s fund and funds like it could be diminished, Seyffart said. 

The analyst added: “I don’t think it’s out of the question that we could get an approval or at least the conversation of looking at an approval for a bitcoin ETF in 2021 and maybe 2022.”

Prince said that he would welcome a bitcoin exchange-traded fund (ETF). 

“The firms that build the relationships, the distribution and asset management structures to have significant assets under management before an ETF is approved will be on the short list of firms that are really well-positioned to create or transition to an ETF when the regulators are ready for that,” Prince said.