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

6 points by ArtTimeInvestor ↗ HN
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?

22 comments

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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
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
Why would someone buy Grayscale then and not just hold Bitcoin in their Paypal account for example?
Grustaf
This fund is probably not for retail investors, i guess pension funds or similar institutions invest in it.
ArtTimeInvestor
Pension funds are willing to give a away 2% annually to someone else for holding an asset for them?
Grustaf
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
Why would they not have been able to buy Bitcoin themselves?
chefkoch
I would guess it's a too risky investment for them.
verdverm
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
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.

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

alexmingoia
Yup. That’s what funds are: A business that charges rich people money to lose their money.
[dead] roycerui
Every crypto news seem to link GBTC to BTC price. I don't quite understand how GBTC affect BTC price. Anyone willing to educate me?
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.