BlackRock ETF launch would put pressure on Grayscale's valuation: Bloomberg analyst

Quick Take

  • BlackRock’s entrance into the bitcoin ETF market would put pressure on Grayscale’s valuation and fees, according to Bloomberg Intelligence analyst James Seyffart.
  • Seyffart joined The Scoop this week to discuss the new filing in an episode that will be released this Thursday.

BlackRock's entrance into the market for crypto-tied exchange traded products might be a welcomed development by industry bulls, but it could prove to be a headache for one of the largest market participants.

The company, which last week submitted a filing to the U.S. Securities and Exchange Commission for a new trust tied to the largest cryptocurrency, is among a number of asset management firms keen to introduce a spot-based product to the market. Grayscale, which has long offered a wide-range of trust products, is another. 

Unlike an ETF, which trades on a national securities exchange, Grayscale's products trade over-the-counter and don't always track the price of the underlying asset. Still, it has been able to charge a hefty fee to traders. 

Grayscale, the largest crypto native asset manager, is suing the SEC to upgrade its trust to an ETF.

BlackRock rival product

Data from The Block Research indicates that the firm brought in more than $230 million from its flagship GBTC and ETHE products since the beginning of the year. Still, the 2.0% and 2.5% annual fees it charges to manage those assets may soon collapse if BlackRock can successfully bring a rival product to market, says James Seyffart of Bloomberg Intelligence. 

Grayscale's Bitcoin Trust manages over $16 billion. 

Seyffart, who joined an episode of The Scoop this week, noted that a BlackRock fund would hit Grayscale's valuation.

“If BlackRock wins approval for their ETF, which isn’t guaranteed, it may decrease Grayscale's valuation because Grayscale would be forced to lower fees sooner than might have been assumed," Seyffart noted.

"On top of that, if GBTC converts to an ETF then the fund will be subject to potential outflows,” he added.

DCG — the parent company of Grayscale — has actively been looking to offload assets, including media company CoinDesk, in the wake of the crypto credit crash. The firm's lending unit Genesis Capital owes more than $3 billion to its creditors and was at risk of default earlier this year.

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