Unveiling the Secrets: Spot Bitcoin ETF Fees, Tracking, and Future Challenges

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Crypto investors are eagerly awaiting the Securities and Exchange Commission’s approval of spot bitcoin applications, which is expected to happen on Wednesday. This development has sparked discussions about the trading, cost, and valuation of a spot bitcoin ETF.

Fees: A Competitive Market

Fees are a crucial consideration for investors, and with nearly a dozen ETFs vying for attention, issuers are engaged in a price war. For instance, ARK Invest, in partnership with 21Shares, initially announced a fee of 0.8% for their bitcoin ETF but later decided to offer no fee for the first six months. Other issuers like Bitwise, Invesco, and Grayscale are also offering discounts, with some charging as low as 0% for the first six months.

Spot bitcoin ETF fees:

  • Bitwise (GBTC): 0.0% (after first six months: 0.24%)
  • ARK Invest/21Shares (ARKB): 0.0% (after first six months: 0.25%)
  • Invesco Galaxy Bitcoin ETF (BTCO): 0.0% (after first six months: 0.59%)
  • iShares Bitcoin Trust (IBIT): 0.20% (after first 12 months: 0.30%)
  • VanEck Bitcoin Trust (HODL): 0.25%
  • Franklin Templeton Digital Holdings Trust: 0.29%
  • Fidelity Wise Origin Bitcoin Trust (FBTC): 0.39%
  • WisdomTree Bitcoin Trust (BTCW): 0.50%
  • Valkyrie Bitcoin Fund (BTF): 0.80%
  • Grayscale Bitcoin Trust (GBTC): 1.50%

Invesco’s Galaxy Bitcoin ETF has set its expense ratio at 0.0% for the initial six months and the first billion in assets, and then it goes up to 0.59%.

Tracking Bitcoin and Bitcoin Futures

One of the key questions is how well a spot bitcoin ETF will track the performance of bitcoin and bitcoin futures. Simeon Hyman, ProShares’ global investment strategist, believes that bitcoin futures ETFs have tracked bitcoin fairly well. However, he also acknowledges that the spot market for bitcoin is still not as mature as the futures market, which is regulated and more mature. The extent to which they track each other remains to be seen.

There is also a concern about whether the bitcoin ETFs will trade at a premium or discount to their net asset value (NAV). The NAV represents the value of the bitcoin held by the ETF. Some worry that the creation and redemption process for spot bitcoin ETFs could lead to trading at a premium to its NAV.

“Some of these ETFs will trade at a premium, and then as investors start to understand the nuances, that’s when we will filter out the nuances and the small points,” said Reggie Brown, GTS co-Global Head of ETF Trading & Sales.

Attracting New Money

It’s uncertain how much new money will flow into the market once a spot bitcoin ETF is available for trading. However, two significant events related to ETFs have previously fueled interest in bitcoin:

  1. The introduction of bitcoin futures ETFs in October 2021, which helped drive the price from almost ,000 to over ,000 by January 2022.
  2. Blackrock’s application for a bitcoin ETF in June 2023, which contributed to a price increase from around ,000 to ,000 in just a few days.

Reggie Brown estimates that the combined ETFs could attract significant inflows, possibly ranging from billion to billion within 30 days and up to – billion in new assets this year. However, considering the current market capitalization of bitcoin at nearly 0 billion, these inflows are not substantial. The Canadian spot bitcoin ETF, the Purpose Bitcoin ETF, has accumulated about 0 million in assets over two years.

What Lies Ahead?

The next significant issue is whether major institutions and financial advisors will allow their investors to trade bitcoin on their platforms. The launch of a bitcoin ETF does not guarantee participation from institutions like JP Morgan.

Matt Hougan, CIO of Bitwise Asset Management, highlights two upcoming events: the bitcoin halving in April and potential interest rate cuts from the Federal Reserve. Higher interest rates could pose a challenge for non-yielding assets like bitcoin or gold.