Why a 10% Drop in Grayscale’s Bitcoin ETF Tuesday Shouldn’t Rattle Investors

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Important points

By the end of the trading day on Tuesday, 10% of Grayscale Bitcoin Trust (GBTC) holders’ assets will be converted into the new Grayscale Bitcoin Mini Trust.

The move sent GBTC shares plunging by more than 10% on Tuesday.

Grayscale Bitcoin Mini Trust comes with lower fees than GBTC.

Starting Tuesday, GBTC investors will receive one share of the new ETF for every GBTC share they own.

Grayscale’s Bitcoin Trust (GBTC), the second-largest spot bitcoin exchange-traded fund (ETF) by assets, lost 11% of its value on Tuesday. But Grayscale said investors shouldn’t worry.

The decline was largely expected, as 10% of the fund’s bitcoin holdings were set aside to form the Grayscale Bitcoin Mini Trust. The additional decline can be attributed to changes in the price of bitcoin, which has been trending down about 2% in recent trading.

What’s Happening to Grayscale Bitcoin Trust?

Grayscale Bitcoin Trust existed as a bitcoin investment fund even before the U.S. Securities and Exchange Commission approved spot bitcoin ETFs in January of this year. When that approval came, the existing Grayscale fund converted to a spot bitcoin (BTCUSD) ETF. However, it saw major outflows, mostly due to the relatively high fees it charged.

Grayscale Bitcoin Mini Trust is a new spot bitcoin ETF that offers lower fees and smaller denominations than the Grayscale Bitcoin Trust.

A distribution of 10% of the existing fund’s bitcoin holdings will launch the new ETF. So what does this mean if you’re an investor in GBTC?

Those who invest in GBTC as of Tuesday will be entitled to shares in the new ETF, but if you buy GBTC after Tuesday, you will not receive any shares in the new fund. Existing holders will receive one share in the new ETF for every share they own in GBTC.

Pending regulatory approval from the SEC, the Grayscale Bitcoin Mini Trust is expected to trade on NYSE Arca under the ticker “BTC.”

Should I Care About Grayscale’s ‘Mini’ Bitcoin ETF?

With this new product, Grayscale hopes to offer an ETF that is more competitive with other options on the market, such as BlackRock’s iShares Bitcoin Trust (IBIT), which has seen inflows of around $20 billion since its January launch, according to Farside Investors. Meanwhile, GBTC has reported outflows of around $19 billion. The iShares ETF charges 0.25%, compared to GBTC’s 1.5%.

A similar situation applies to the Grayscale Ethereum Trust (ETHE) and Grayscale Ethereum Mini Trust, but the key difference between them is that the Grayscale Ethereum Mini Trust was available on day 1 of the first spot ether (ETHUSD) ETFs being traded on US exchanges earlier this month.

The story continues

According to Farside Investors, by the end of trading on Monday, ETHE had recorded an outflow of approximately $1.7 billion, while the Grayscale Ethereum Mini Trust had seen an inflow of $168.9 million.

Read the original article on Investopedia.