Grayscale Ethereum ETF to Charge Hefty 2.5% Fees, Another Blunder in the Making?

Grayscale Investments is drawing significant attention, and not all of it positive, as it prepares to launch its Grayscale Ethereum ETF (ETHE). The proposed ETF has stirred controversy due to its high fee structure, which could potentially lead to substantial outflows by the end of 2024.

Competitive Fee Structures Among Ethereum ETFs

Most issuers of the soon-to-be-launched spot Ethereum ETFs have set their fees below 0.25%. In stark contrast, Grayscale’s ETHE plans to charge a hefty 2.5% fee, nearly ten times higher than its competitors. This move has raised concerns that Grayscale might face similar outflows to those experienced with its Bitcoin Trust, which saw a staggering $18.7 billion exit.

Will Grayscale replicate the $GBTC fee mistake with $ETHE?

If so, expect 50%-60% outflows Just over $10 Billion AUM https://t.co/EB8IXDGPg4 pic.twitter.com/TFSzbnRvpZ

— HODL15Capital (@HODL15Capital) July 17, 2024

Potential Impact on Grayscale Ethereum Trust

The Grayscale Ethereum Trust (ETHE) currently manages over $10 billion in assets. Industry experts predict that if the high fee structure deters investors, the trust could witness outflows exceeding $5 billion as investors seek more cost-effective alternatives. Bloomberg ETF strategist Eric Balchunas expressed his astonishment at Grayscale’s decision, suggesting that the high fees could provoke substantial investor backlash and outflows.

Industry Criticism and Concerns

Nate Geraci, President of ETF Store, echoed these concerns, criticizing Grayscale for prioritizing short-term revenue gains over long-term sustainability. He pointed out that Grayscale’s strategy could be a repeated blunder, risking a significant loss of investor confidence and assets under management.

Btw, think this is *huge* miss by Grayscale…

If you’re gonna charge *2.5%* on ETHE, need to undercut market w/ mini trust.

Disappointing.

Entire pricing strategy around both spot btc & eth ETFs seems focused on maximizing short-term revenue vs playing long game. https://t.co/8DE1UIlCIo

— Nate Geraci (@NateGeraci) July 17, 2024

Grayscale’s Counter Move: Ethereum Mini Trust

In an attempt to mitigate the backlash, Grayscale has also filed for an Ethereum Mini Trust, proposing a competitive fee of 0.25%, aligned with other market players. Despite this, analysts like Balchunas remain skeptical, questioning Grayscale’s ability to compete with industry giants such as BlackRock, which is also entering the Ethereum ETF market with lower fees.

Cheap but not sure cheap enough to move the needle (as most are cheaper and brand name BlackRock is same fee) to attract organic flows to offset The Big Unlock. And do these newborns have enough strength to offset those outflows a la btc. Anyway short story is the 2.5% fee made… https://t.co/0sH0tXrjtL

— Eric Balchunas (@EricBalchunas) July 17, 2024

Market Reaction and Future Prospects

Amid these developments, Ethereum’s price has experienced some selling pressure, struggling to maintain levels above $3,500. Analysts speculate that the upcoming SEC approval news could trigger a temporary “sell-the-news” reaction before potentially strong inflows resume.

Also Read: Grayscale to Distribute Ethereum Mini ETF Shares in July 2024