On 10 January 2024, the US Securities regulator approved the inaugural US-listed exchange-traded funds - or ETFs - designed to mirror the performance of the cryptocurrency, Bitcoin.
This decision marks a pivotal moment for both the world's largest cryptocurrency and the wider crypto sector. A culmination of ten years of development, these ETFs represent a significant shift for cryptocurrency, enabling investors to access the world's largest cryptocurrency, Bitcoin, without the need for direct ownership. This development offers a substantial lift for the crypto industry, which has faced challenges in the form of various scandals including the fall of FTX and recent fines for Binance.
The Securities and Exchange Commission (SEC) announced its approval of 11 applications, including those from BlackRock, Ark Investments/21Shares, Fidelity, Invesco, and VanEck. Despite concerns voiced by certain officials and investor advocates regarding associated risks, the decision paved the way for many of these products to commence a likely competitive race for market dominance among the issuers.
Approved Spot Bitcoin ETFs:
- Grayscale Bitcoin Trust (GBTC)
- Bitwise Bitcoin ETF (BITB)
- Hashdex Bitcoin ETF (DEFI)
- Blackrock's iShares Bitcoin Trust (IBIT)
- Valkyrie Bitcoin Fund (BRRR)
- ARK 21Shares Bitcoin ETF (ARKB)
- Invesco Galaxy Bitcoin ETF (BTCO)
- VanEck Bitcoin Trust (HODL)
- WisdomTree Bitcoin Fund (BTCW)
- Fidelity Wise Origin Bitcoin Fund (FBTC)
- Franklin Bitcoin ETF (EZBC)
Source: Morningstar, Issuer Form S-1s. Securities and Exchange Commission EDGAR Online. Securities and Exchange Commission, 10 Jan. 2024, www.sec.gov/edgar.shtml.
Fees in the ETFs
All Spot Bitcoin ETFs aim to provide exposure to Bitcoin. Physically holding Bitcoin leaves little room for issuers to establish a distinctive advantage. Nevertheless, this doesn't imply that all these ETFs are identical. The fee structures for the funds are different:
The Bitwise Bitcoin ETF has the lowest ongoing fee at 0.20%. However, fees on ETFs offered by ARK, Fidelity, VanEck, and iShares are all within 5 basis points of Bitwise's ETF.
Issuers have also utilised fee waivers to attract investors initially. Six bitcoin ETFs are set to launch with a 0.00% fee after waivers. Still, it's important to note that each waiver comes with its limitations, typically lasting for six months and applying to the first $1 billion to $5 billion in assets.
Spot Bitcoin ETFs substantially undercut the high fees imposed by existing crypto funds. Currently, Grayscale trusts have a fee range of 2% to 3%, and the largest Bitcoin futures ETF charges 0.95%, which is considerably higher than the 0.20% price tag proposed in Bitwise's Spot Bitcoin ETF filing.
Additionally, Investors in the current Bitcoin futures ETFs incur an additional fee when transitioning from one futures contract to the next, a concern that spot Bitcoin ETFs do not encounter.
More detail on fees is included in the video above.
The SEC's simultaneous approval of multiple filings has opened the opportunity for investing access to Bitcoin without owning any of the assets. The decision has sparked intense fee competition among issuers throughout the application process. The emphasis on lower fees and costs could become a battleground for attracting new investors who were likely put off from investing in crypto due to the volatility in the asset class.