Would you pay $150 a year for something you could get for free? That's exactly what some bitcoin ETF investors are doing.
Following the Securities and Exchange Commission's approval of 11 new ETFs that invest in spot bitcoin, an intense battle over fees erupted. That's pushed fees to zero in some cases. Investors, though, still have $28.6 billion in a fund that was converted into a spot bitcoin ETF: Grayscale Bitcoin Trust, says Morningstar Direct. And unfortunately, this fund is still charging 1.5% annually, says Vetta Fi.
That's a steep price to pay. It's $150 annually for a $10,000 bitcoin portfolio and $375 annually for a $25,000 one. And that's assuming the price of the fund doesn't rise. The price of bitcoin is up nearly 160% in just a year, says Coinbase.
If you're paying up, it's time to look at options. "With 11 basically identical products, fees will be the biggest differentiator for a retail investor. These ETFs were engaged in an early fee war prior to the launch and many of these now offer 0% fees for the first few months," said Roxanna Islam, head of sector and industry analysis at Vetta Fi.
Intense Bitcoin ETF Rivalry
ETF providers were all lined up to launch their spot ETFs the second the SEC signed off on them. Most of the big names are in there.
iShares has its Bitcoin Trust, Cathie Wood's ARK Invest has the ARK21Shares Bitcoin and Invesco launched its Galaxy Bitcoin ETF. Even many of the staid mutual fund providers are jumping in. Fidelity has the Wise Origin Bitcoin Fund and Franklin Templeton the Digital Holdings Trust. So far, iShares Bitcoin Trust is the trading volume winner among the newest ETFs, says Bloomberg. It grabbed $1 billion in first-day volume, or roughly a quarter of trading in all the ETFs.
All the ETFs do the same thing, invest and hold bitcoin at current prices. This is different from funds up until now that used futures contracts to own bitcoin instead. And that means the fee of the ETF is the differentiator. And most are being aggressive here. Fees are lifted for three, six and even 12 months at some ETFs. And at others, there's no fee if you invest a huge sum of money like $1 billion or more.
Take Bitwise Bitcoin ETF for instance. The fee with the waiver is 0%. The waiver lasts for six months or for investments of $1 billion or more. Following the waiver's expiration, the fee rises to 0.2%. But that's still the lowest among the 11 spot bitcoin ETFs.
Most of the spot bitcoin ETF fees are hitting around the median of 0.3% after the waivers expire. But then there's Grayscale Bitcoin Trust sticking out at 1.5%.
Will Spot Bitcoin ETF Investors Pay More?
But don't expect a break at the largest and oldest Grayscale Bitcoin Trust, which converted from a non-ETF structure into an ETF.
Grayscale hopes traders are willing to pay dearly for its longer track record. Also, some investors are financially trapped as they might trigger taxes if they sell.
"We expect that GBTC will continue to be a best-in-class offering for investors looking to access a bitcoin ETF with market-leading liquidity, tight spreads, high trading volumes and a decade-long track record of operational success – managed by an asset manager with a passion, commitment, and specialty in crypto," said a Grayscale spokeswoman.
It's easy to see why Grayscale is digging in. Based on assets of $28.6 billion, Grayscale collects annual fees of nearly half a billion dollars on the ETF. And the fee used to be even higher: 2%. "While GBTC has the highest fee at 1.5%, they are likely relying on their scale and existing assets and feel less of a need to compete with newer entrants," Islam said.
The spread between the bid and offer prices on the Grayscale ETF is usually small, roughly 0.03%.
But with such big names getting into the spot bitcoin ETF game, the game might change. Most of the newer ETFs have tight spreads, too. Some investors may be willing to pay a little more than the very lowest ETF, says Islam. But fees will still matter. "Newer crypto investors who are hesitant about investing in an emerging asset may feel more comfortable using a large, well-known issuer like BlackRock or Fidelity regardless of a small difference in fees."
Just Know What You're Getting Into With Spot Bitcoin ETFs
Most of the online brokers are rolling out the red carpet for individual investors interested in cryptocurrency.
Repeated Best Online Broker award winner, Charles Schwab now offers a host of ways to invest in bitcoin. It offers trading in all 11 spot bitcoin ETFs. Additionally, it offers bitcoin futures mutual funds and ETFs plus other blockchain and crypto-related equity ETFs, such as the Schwab Crypto Thematic ETF. Additionally, clients with a futures account can trade bitcoin futures. There are also non-ETF structured cryptocurrency coin trusts that offer exposure to cryptocurrencies.
Buying spot bitcoin ETFs also eases on the tax reporting headaches versus direct investments for investors. "Yes, all tax reporting requirements (1099s, etc.) would be handled by Schwab, just like any other ETF," said spokesperson Ella Garnett.
Not all brokers are as gung-ho on bitcoin, though. Vanguard isn't allowing spot bitcoin ETF purchases yet, says Jeff DeMaso, editor of The Independent Vanguard Adviser. "Vanguard may be blocking the new spot bitcoin ETFs, but Vanguard investors can still play bitcoin if they want ... at least for now."
But it goes without saying, trading any currency is a risky business. Just because you can do it, doesn't mean you should.
Meet The Spot Bitcoin ETFs
Most waive fees
| ETF | Symbol | Waiver (Yes/No)? | Fee with waiver | Fee after waiver | Waiver terms |
|---|---|---|---|---|---|
| Bitwise Bitcoin ETF Trust | Y | 0% | 0.20% | 6 months/$1 billion | |
| ARK 21Shares Bitcoin | Y | 0% | 0.21% | 6 months/$1 billion | |
| Ishares Bitcoin Trust | Y | 0.12% | 0.25% | 12 months/$5 billion | |
| Fidelity Wise Origin Bitcoin Fund | Y | 0% | 0.25% | Until July 31, 2024 | |
| VanEck Bitcoin Trust | N | 0.25% | 0.25% | ||
| Franklin Templeton Digital Holdings Trust | N | 0.29% | 0.29% | ||
| WisdomTree Bitcoin Trust | Y | 0% | 0.30% | 6 months/$1 billion | |
| Invesco Galaxy Bitcoin | Y | 0% | 0.39% | 6 months/$5 billion | |
| Valkyrie Bitcoin Fund | Y | 0% | 0.49% | 3 months | |
| Hashdex Bitcoin Futures ETF | N | 0.90% | 0.90% | ||
| Grayscale Bitcoin Trust (BTC) | N | 1.50% | 1.50% |
