Grayscale Adjusts Ether ETF Fees in Response to Criticism: Game On?

• Grayscale has made key adjustments to its ether ETF fee strategy.
• Analysts suggest that the move makes the ether ETF race more interesting, with Grayscale now holding an edge.
• The move follows criticism that the firm had missed a big opportunity with its initial fee quotes.

The typical investor’s primary goal is maximizing profit, making small differences in costs like fees a make-or-break deal when considering long-term returns. As such, for ETF issuers offering investment vehicles tracking the same underlying asset, metrics like fees are one of the biggest areas of competition, as they could decide whether the firm would stand a chance of attracting much-needed inflows from investors.

That is why when Grayscale disclosed that it would maintain its 2.5% fee after converting its ether Trust to an ETF and place a top-of-the-range 0.25% fee on its mini ether ETF, several analysts were left scratching their heads . 

For these analysts, Grayscale—already charging over ten times more than most for its large fund—was bound to see significant outflows to competitors and little to no organic inflows, a problem compounded by the firm’s failure to try to undercut the competition with its smaller fund. Grayscale, however, appears to have been paying close attention to the criticism in the past 24 hours, as it has now made key changes to the fee structure of its mini ETF.

Grayscale Makes Key Changes

Grayscale has switched things up in its ether ETF fee strategy. 

In an unexpected amended S-1 filing submitted on Thursday, July 18, the firm reduced the management fee for its $1 billion mini ether ETF from 0.25% to 0.15%. Beyond slashing the fee, Grayscale also disclosed that it would waive the fee for the first six months or till the fund seeded from 10% of the capital from its soon-to-be converted $10 billion Trust exceeded $2 billion. They had initially filed to lower the fee from 0.25% to 0.12% for the first 12 months.

With the recent amendment, Grayscale’s mini ether ETF now boasts the lowest fees of any of the proposed ether ETFs expected to go live on Tuesday, July 23. For context, the fees for other proposed ETFs range between 0.19% to 0.25% ; of course, this excludes Grayscale’s larger fund, which will charge a whopping 2.5% annually.

Grayscale’s move has attracted a flurry of positive reactions from experts, many of whom had thought this was how the asset manager would have played things in the first place. These analysts believe the fee cut will likely make things more interesting in the ether ETF race.

“Grayscale Wised Up”

“This is what I was expecting yesterday. Grayscale wised up,” Van Buren Capital General Partner Scott Johnsson enthused in an X post on Thursday, July 18. The venture capitalist argued that Grayscale’s move pressured issuers like BlackRock to put more effort into marketing their products.

These sentiments come as with $1 billion in assets under management at launch, Grayscale’s mini ether ETF would have far more liquidity than all the other prospective ETFs (excluding Grayscale’s larger fund) combined, all with a significantly lower management fee.

Meanwhile, Van Buren Capital’s Johnsson was not the only analyst to contend that Grayscale’s move made things more interesting. “This is how you go for the jugular,” The ETF Store President Nate Geraci quipped in response to the Grayscale amendment. 

"Grayscale paved regulatory path for spot btc eth ETFs. Period. No reason not to capitalize on that by taking leadership position in how they approach competition in spot crypto ETF category. Smart move IMO," he added.

Grayscale’s successful appeal of an SEC decision to deny its plan to convert its Bitcoin Trust to an ETF is widely seen as the catalyst that changed the tide for spot crypto ETF applications in the U.S. In a January 2024 statement on the approval of spot Bitcoin ETFs, SEC Chair Gary Gensler cited the court ruling as a significant deciding factor in his vote for the crypto-backed offerings.

Despite Grayscale’s pivotal role in ushering this new era of greater institutional crypto adoption, however, its converted Bitcoin ETF has seen the most outflows of any of the January launched products, with its Bitcoin holdings dropping over 55% from 620,000 BTC at launch to about 273,000 BTC, according to CoinGlass data at the time of writing, largely due to investors fleeing high fees. See more on why Grayscale’s fees are typically higher here.

For many analysts, Grayscale’s ether ETF offerings looked set to suffer a similar fate where it would see little to no organic inflows when it had initially kept fees for its mini ETF at 0.25%.

On the Flipside 

• Grayscale’s fee for its largest ether ETF fund remains at 2.5%.
• How investors would react to the current ether ETF fee war at launch remains to be seen.

Why This Matters

With Grayscale’s $10 billion soon-to-be converted ether Trust set to come with a high 2.5% fee, analysts anticipate a large rush of outflows at launch. By offering a much lower fee with its still significantly liquid mini fund, Grayscale ensures that it still benefits from these outflows and attracts organic inflows. At the same time, beyond benefitting Grayscale, it offers one more ETF to help absorb the rush of outflows from the larger fund, making it easier for ether ETFs to achieve net positive flows.

Read this for more on the Grayscale ether ETF fee debacle:
Why Grayscale’s Ether ETF Fee Strategy Has Come Under Fire

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