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BlackRock and Grayscale persist with Ethereum ETF applications despite SEC delays

Despite recent hiccups with the SEC delaying decisions, Grayscale Investments and BlackRock have not sat idle. They’ve made progress by updating their applications for spot Ethereum ETFs. On April 23, Grayscale filed an S-3 registration statement with the SEC.

This maneuver is part of their strategy to turn the existing Grayscale Ethereum Trust into a spot ETF.

Grayscale’s Mini Bitcoin ETF strategy shift

Grayscale Investments is adopting a similar approach as their major Bitcoin ETF competitor by introducing a less expensive “Mini” version of GBTC. Although utilizing this strategy may not be as successful as BlackRock’s similar moves in other ETF areas, experts believe the new Grayscale fund could attract investments rapidly.

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Grayscale’s situation with the Bitcoin ETF is complex. They successfully fought a case against the Securities and Exchange Commission last year, which later helped the regulator approve such funds.

Furthermore, the firm’s Bitcoin Trust ETF currently manages the most assets — at least now. BlackRock’s rapidly expanding iShares Bitcoin Trust held about $18.2 billion in assets as of Tuesday, placing it second to GBTC’s $20.2 billion asset pool. On the other hand, the Fidelity Wise Origin Bitcoin Fund manages around $10 billion in assets.

The GBTC, which has a higher fee of 1.5% compared to its competitors, has been losing investor money. Since it became an ETF on January 11, the fund has experienced net outflows every trading day, leading to a total loss of $16.8 billion, as Farside Investors’ data shows.

Grayscale plans to initiate a Bitcoin Mini Trust. This would operate as a ‘spin-off’ from commodity ETFs where a portion of the parent fund’s bitcoin holdings would be directed towards this new venture, as stated by Grayscale. Grayscale announced on Tuesday that they plan to introduce two diverse types of ether ETFs.

Grayscale’s new fund vs. lowering GBTC fee

Why doesn’t Grayscale just reduce the 1.5% fee of GBTC rather than starting a new fund altogether? A representative from Grayscale didn’t immediately respond to our request for more details on this approach. However, market analysts suggest introducing an additional fund could attract a broader range of investors.

Neena Mishra, who heads ETF research at Zacks Investment Research, pointed out that short-term traders might still prefer GBTC for its fluidity. Meanwhile, long-term investors who plan to hold onto their assets would likely choose BTC.

In a research note from December 2017, Ben Johnson, the leader of client solutions for asset management at Morningstar, discussed this specific strategy related to a different fund division.

In 2003, BlackRock released the iShares MSCI Emerging Markets ETF. About two years later, Vanguard, a competing fund group, introduced a more affordable ETF for emerging markets stocks, the Vanguard FTSE Emerging Markets ETF.

In 2012, BlackRock launched the iShares Core MSCI Emerging Markets ETF in response to Vanguard’s competitive edge over EEM. It was a wider range fund offered at a 0.18% price, compared to the 0.68% of EEM. This change occurred years after EEM had lost significant market share to VWO.

When IEMG was launched, Johnson noted that it was effectively an attempt by BlackRock to maximize its benefits while still retaining full privileges, quite like the proverbial having one’s cake and eating it too.

According to data from ETF.com, the initial emerging markets ETF, known as EEM, currently manages assets worth $16.6 billion. Meanwhile, IEMG and VWO handle around $74 billion each in assets.

In 2001, BlackRock introduced the iShares MSCI EAFE ETF with an asset value of $50.8 billion and an expense ratio of 0.35%. About a decade later, in 2012, it launched the more affordable iShares Core MSCI EAFE ETF with a 0.07% expense. IEFA now manages a substantial $110.8 billion.

Even though not as widely adopted as IEMG and IEFA, a compact version of the original physically supported gold ETF saw a considerable influx of investments.

In 2004, State Street Global Advisors launched SPDR Gold Shares, and in 2018, they introduced a more affordable alternative, SPDR Gold MiniShares Trust. Currently, GLD and GLDM manage assets worth $63.6 billion and $7.6 billion, respectively.

The odds of getting Ethereum ETFs approved are looking grim. Eric Balchunas, a Bloomberg ETF analyst who previously estimated a 70% chance of approval, now believes it’s dropped to a 25% likelihood. Betting site Polymarket predicts only an 11% chance of the SEC approving by the end of May.