Original author: Andrew Throuvalas, Decrypt

Original compilation: Jordan, PANews

On the evening of March 12, according to an S-1 application document disclosed by the U.S. Securities and Exchange Commission, crypto asset management giant Grayscale has registered with it to apply for a new mini version of the Bitcoin trust fund product: Grayscale Bitcoin Mini. Trust, the stock code is BTC. According to the application document information, if the mini version of GBTC is approved by regulators, it will be listed on the New York Stock Exchange and operate independently from GBTC.

Why does Grayscale launch a “new version of GBTC”?

In the ETF industry, it is not uncommon to issue mini versions of flagship trust funds, but according to a source close to Grayscale, the difference with GBTC is that the new fund Grayscale Bitcoin Mini Trust is through a spin-off. ) method, which means that Grayscale needs to automatically transfer a portion of GBTC shares to Grayscale Bitcoin Mini Trust.

Currently, the S-1 filing disclosed by the U.S. Securities and Exchange Commission does not disclose the proportion of shares allocated by Grayscale Plan, but it is reported that GBTC is expected to add details describing the terms and conditions of the split in the subsequent 14 C application form. In addition, Grayscale also stated that it has not solicited shareholder consent, authorization, approval or agency for the spin-off of GBTC at this stage, and GBTC shareholders do not need to pay any consideration, exchange or give up existing GBTC shares or take any other actions to receive the mini-GBTC distribution date shares allocated.

So why did Grayscale choose to launch a “mini Bitcoin trust” product more than two months after the spot Bitcoin ETF GBTC received approval from the SEC?

First, the Grayscale Bitcoin Mini Trust could allow Grayscale to become more competitive on fees.In fact, the realization of capital gains is one of the reasons why GBTC shareholders are tied to the existing product, as Grayscale GBTCs fees are relatively high relative to competing products.

If you go by the rates currently provided by GBTC, it is indeed difficult to compete with some low-cost spot Bitcoin ETFs on the market. Although Grayscale transformed GBTC from a closed Bitcoin foundation to an ETF, as shown in the table above, 1.5 % rate is the highest among similar products (GBTC’s rate is even as high as 2% before converting to a spot Bitcoin ETF), compared to Franklin’s EZBC rate of only 0.19%, and Bitwise’s BITB is as low as 0.2 %. For Registered Investment Advisor (RIA) firms and broker-dealers prepared to recommend Bitcoin ETF products to their clients, the rate is likely to be the deciding factor in their choice of product, so it makes sense to offer a cheaper alternative to GBTC.

Although Grayscale has not yet disclosed the fee rate information of the mini trust, considering the current market environment, this number should not be too high.

Another potential reason for Grayscale’s application to launch a “mini trust” is tax issues.Since the Bitcoin ETF was approved, Grayscale Bitcoin Trust investors have flocked to ETFs, and the tax implications of such a move can vary widely depending on the investors position.

For investors holding GBTC in a U.S. retirement account, while all of these securities are proxies for Bitcoin, they are held by traditional brokers, which means that if done in a retirement account, transferring from any of them to a new All ETFs will be tax-free. But for investors who hold GBTC in taxable accounts, the situation is different. Whether or not they pay tax will depend on whether their position is an unrealized gain or a loss. If the investor has an unrealized gain, the investment is sold. Investing in an ETF will trigger a taxable gain, meaning an investors capital available to reinvest in the ETF is effectively diluted by taxes.

In order to allow investors to reasonably avoid taxes, Grayscale has stated in this S-1 filing submitted to the U.S. Securities and Exchange Commission: The spin-off of the mini-trust will not become a taxable event for GBTC and its shareholders.

Bloomberg ETF analyst James Seyffar even bluntly stated that the mini trust application submitted by Grayscale is to help long-term holders avoid taxes, and it is almost certain that the mini trust will benefit long-term GBTC holders, especially Holders hit by potential capital gains taxes, which they previously had to pay, help clients find a good middle ground between not losing income and selling.

Can “mini trusts” curb GBTC capital outflows?

Since converting to a spot Bitcoin ETF on January 11, GBTC investors have redeemed approximately 229,000 BTC (worth over $10 billion), and the fund has yet to record a single-day net inflow. By comparison, the spot Bitcoin ETFs of Grayscale’s biggest competitors BlackRock and Fidelity have accumulated 204,000 BTC and 128,000 BTC respectively.

According to official data from Grayscale, as of March 12, GBTC’s Bitcoin holdings have fallen below the 400,000 BTC mark, falling to 388,868.7007 BTC, and the number of circulating shares has also reduced to less than 500 million. However, thanks to the cryptocurrency The currency market rebound, especially Bitcoins rise to the $70,000 range, has allowed GBTCs asset management scale (non-GAAP) to remain in the $27-28 billion range, the largest of its kind.

However, it should be noted that Grayscale’s market dominance has begun to show signs of weakening. At the close of trading last Friday, Grayscale GBTC’s share of total trading volume in spot Bitcoin ETFs fell below 20% for the first time. At the same time, Belle The total trading volume of Dehe Fidelitys ETFs rose to 69% (of which BlackRocks IBIT trading volume accounted for nearly 47%) - you know, when the spot Bitcoin ETF started trading in January, Grayscale GBTC absorbed about half of the trading activity, which seems to indicate that as the GBTC sell-off activity has tapered off, early investors have begun to switch to other rival products after redeeming their funds.

At this stage, the launch of Grayscale Bitcoin Mini Trust may be able to slow down the outflow of GBTC funds to a certain extent, but the effect may be limited. On the one hand, Grayscale needs to face the challenges of many competitors in the market to prevent existing customers from switching to other products; on the other hand, Grayscale also needs to attract new investors. Even if Grayscale Bitcoin Mini Trust obtains regulatory approval for listing, will this product be able to Greater and more attractive preferential measures for investors in terms of taxes and rates are also unknown, let us wait and see!