A new kid on the block is launching the Osprey Bitcoin Trust on OTC markets. The 0.49% management fee plans to challenge Grayscale’s investment dominance.
Custodial Fee Wars
Cryptocurrency is still barely represented on traditional markets. The Grayscale Bitcoin Trust (GBTC) and the Bitwise 10 Crypto Index Fund (BITW) have led the pack. With bitcoin’s recent rise, their value has exploded.
But now, a new Bitcoin trust is barreling onto the OTC market: the Osprey Bitcoin Trust (OBTC). This trust boasts a management fee of only 0.49%.
The Grayscale Bitcoin Trust charges a 2% fee, and Bitwise charges a 2.5% fee. Grayscale saw an influx of $3 billion into its trusts in Q4 2020, while Bitwise attracted $500 million over the course of December.
Bloomberg Intelligence believes that Osprey is trying to capitalize on Bitcoin’s popularity by undercutting Grayscale with low fees.
One Bloomberg analyst said that it was “only a matter of time” before another retail company tried to capitalize on the inflow of money into crypto.
Fidelity digital custody services will be looking after Osprey’s Bitcoin. While Fidelity does not provide crypto directly to retail investors, this foray brings the giant brokerage a step closer to full crypto acceptance.
A Bitcoin ETF in the Future?
While these OTC trusts are inching ever closer towards the mainstream and may be more acceptable to institutional investors, an ETF would likely be the holy grail.
The US Securities and Exchange Commission (SEC) has repeatedly denied application for a Bitcoin or crypto Exchange Traded Fund. Such funds are popular with commodities and other similar sectors. They allow investors to easily trade equity in a basket of products.
On January 7, investment firm VanEck filed for a Bitcoin ETF. Though the incoming SEC chief Gary Gensler appears warm to crypto, the law isn’t entirely clear, and such ETFs have been rejected in the past.
The ETF would be a hugely bullish step for crypto. Such a fund would make it easier for investors to put crypto in their tax-advantaged retirement accounts, such as an IRA.
In lieu of that, these trusts such as GBTC and OBTC are filling the gap and could be managed easily in some brokerage accounts.
The Osprey website says that accredited investors would face a $25,000 minimum to buy directly into the trust. Shares also have a one-year lock-up period. Greg King, CEO of Osprey Funds, said that the company would try to reduce that period to six months.
There may be other ways for traditional investors to dip their toes into crypto on the horizon. Both Coinbase and Gemini, huge crypto exchanges, have applied to trade publicly this year.
Grayscale Investments added 2,612 BTC to its assets under management (AUM) on Jan. 14. This follows purchases of 2,172 bitcoin the previous day.
In a Grayscale report, the firm stated that much of last year’s soaring demand came from institutional investors.
Grayscale Continues to Buy More Bitcoin than Mined
As BeInCrypto previously reported, Grayscale Investments was one of the largest buyers of cryptocurrencies during 2020. Purchases increased during Q4, with the company adding more than $3 billion in digital currencies to its AUM in a single week just before Christmas.
It now holds more than $25 billion worth of crypto. The higher cost of entry following the price rally of the last two months hasn’t put Grayscale off, though.
According to a Twitter account tracking the company’s bitcoin purchases, it added more than 4,700 BTC between Jan. 13-14.
.@Grayscale added another ~2612 #Bitcoin yesterday, which equals 2.9X of daily bitcoin mined.
🚀
Interesting fact regarding GBTC’s investor profile for Y20:
Institutional: 87%
Accredited: 8%
Retirement Accounts: 2%
Family Offices: 3%
(Source: GS Q4 Report) pic.twitter.com/9A5sXjsow9
— GBTC Bitcoin Tracker (@GbtcT) January 15, 2021
As highlighted above, Thursday’s 2,612 BTC purchase represents almost three times the total bitcoin awarded to miners over the same period. On average, miners receive a share of around 900 bitcoin per day.
The rising demand for bitcoin that Grayscale reported in 2020 has not waned in the new year. The firm’s Digital Asset Investment Report for Q4 2020 indicated that investors had poured around $5.7 billion into Grayscale Products last year.
At an average of $90 million a week, the Grayscale Bitcoin Trust (GBTC) represents the most popular Grayscale product. It accounts for the lion’s share of the $109.8 million average weekly investments across all of the firm’s products.
The report also notes that investment ramped up towards the end of the year. The final quarter saw a total of $3.3 billion invested across Grayscale’s family of products, with an average of $217.1 million finding its way into GBTC each week.
Grayscale notes that most of the demand is coming from institutional investors. The company reported that institutions accounted for 93% of investments made during Q4.
GBTC received 87% of the inflows to Grayscale products. This, according to the report, supports the notion that institutions have started looking at BTC as a reserve asset.
Grayscale Ditches XRP Trust
Although demand for bitcoin appears to be growing, the company announced on Thursday that it was dissolving its XRP Trust. The news follows an SEC lawsuit against Ripple Labs, claiming that XRP represents an unregistered security.
Several exchange platforms have announced the delisting of XRP entirely. Meanwhile, others have temporarily paused XRP support until a final court decision.
In justifying its decision to remove the XRP Trust, Grayscale reasoned that converting XRP to USD will likely become more difficult with limited offramps. Subsequently, it is dissolving the product and will distribute the net proceeds to shareholders.
