Bitcoin Fee Wars Erupt as Upstart Targets Grayscale’s Billions

(Bloomberg) -- The fledging world of cryptocurrency funds is set to welcome a bold new entrant.

The Osprey Bitcoin Trust (ticker OBTC) will launch in the over-the-counter markets with a 0.49% management fee, according to the Osprey Funds website. Fidelity Digital Assets will provide custody services.

OBTC’s fee is roughly a fourth of the cost of its main rival, the $28 billion Grayscale Bitcoin Trust (ticker GBTC), which charges 2%. Demand for products such as GBTC has skyrocketed as Bitcoin’s dizzying rally reached all-time highs above $40,000. That frenzy sent more than $3 billion of inflows into Grayscale Investments products in the fourth quarter, the bulk of which was absorbed by GBTC, the company said. Osprey is likely trying to capture some of that market share by undercutting GBTC’s fee, according to Bloomberg Intelligence.

“I would say they are definitely going after GBTC here,” BI analyst James Seyffart said. “At current asset levels, Grayscale is pulling in around $469 million per year from GBTC. It was only a matter of time before someone went after that.”

It’s a mirror of what’s taken place in the $5.6 trillion exchange-traded fund industry, where cutthroat competition for assets has taken fees on some of the most-popular ETFs to near-zero levels. In June, BlackRock Inc. lowered the expense ratio of its biggest ETF -- the $239 billion iShares Core S&P 500 ETF (ticker IVV) -- to just 0.03% in order to match a rival fund from Vanguard Group.

“We are always happy to see digital currency access products enter the market, especially here in the U.S.,” said Michael Sonnenshein, chief executive officer of Grayscale Investments. “We strive to offer products that are familiar to investors, fit within their regulatory framework and are supported by best-in-class service providers.”

Demand for anything in a crypto wrapper has been so strong that investors poured into the likes of GBTC and the Bitwise 10 Crypto Index Fund (ticker BITW) even as their prices soared above the value of their underlying holdings. BITW has already gathered over $500 million in assets after launching in early December, according to data compiled by Bloomberg.

In the absence of a Bitcoin ETF -- which U.S. regulators have yet to approve -- buying shares of GBTC and BITW is seen as one of the easiest ways for investors to get Bitcoin exposure without having to sign up for a crypto exchange or create a digital wallet. The Osprey website touts OBTC as a way to get “exposure to Bitcoin in a qualified IRA or brokerage account.”

Accredited investors face a $25,000 minimum to buy directly into the trust. Shares have a lock-up period of one year before they can be sold in the secondary market. The company anticipates it will begin the process of trying to reduce that period to six months, according to Greg King, chief executive officer of Osprey Funds, a subsidiary of Fairfield, Connecticut-based REX Shares.

“We’re committed to a low-cost product and to best-in-class service providers and we’re excited to offer investors a new alternative in the exchange-traded Bitcoin fund space,” King said in an interview.

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