FTX Wants Its Bitcoins Back From Grayscale

The Grayscale Bitcoin Trust is a pot that contains Bitcoins. Shares of the trust — each representing a share of ownership of the Bitcoins in the pot — trade publicly on OTC Markets like shares of stock. If you have some Bitcoins and want shares of the pot, you can go to Grayscale Investments LLC — which runs the trust — and give them your Bitcoins, and they will give you back shares in the pot. If you have shares of the pot and you want some Bitcoins, however, you can’t go to Grayscale and ask for the Bitcoins back. The pot is one-way. Bitcoins can come in, but they cannot leave.

This is suboptimal product design for customers, but it is very very good product design for Grayscale. As an asset manager, it is just good business to run a pot of money that can increase (when people put in Bitcoins) but not decrease (they can’t take them out).1 Grayscale has got all these Bitcoins in the pot — about $14 billion worth — and, as the manager of the pot, it gets to charge fees on the money in the pot. The fee is 2% per year, so Grayscale collects about $280 million a year for sitting on its giant pot of Bitcoin. Grayscale also has a Grayscale Ethereum Trust, the same idea but for Ether; that has $4.7 billion of Ether in the pot and a 2.5% annual fee.