Crypto investors are waiting as the Securities and Exchange Commission is expected to approve a series of spot Bitcoin applications on Wednesday.
With a spot Bitcoin ETF now looking very real, attention is turning to the details of how it will trade, how much it will cost, how much of the Bitcoin rise is due to front-loaded demand, and the premium or discount valuations .
Fees are competitive and will continue to rise
With nearly a dozen ETFs competing for attention, Bitcoin buyers will be very price sensitive and issuers are already engaged in a modest price war. For example, Cathie Wood's ARK Invest, which is partnering with 21Shares to launch a Bitcoin ETF, initially announced a 0.8% fee, but on Monday announced it would pay no fee for the first six months.
Other issuers also offer significant discounts, with some (Bitwise, ARK, Invesco) offering a 0% fee for the first six months, while Grayscale charges 1.5%.
Find out about Bitcoin ETF fees
Bitwise (BITB) 0.0% (after the first six months: 0.2%)
ARK Invest/21Shares (ARKB): 0.0% (after the first six months: 0.21%)
Invesco Galaxy Bitcoin ETF (BTCO) 0.0% (after the first six months: 0.39%)
iShares Bitcoin Trust (IBIT) 0.12% (after the first 12 months: 0.25%)
VanEck Bitcoin Trust (HODL) 0.25%
Franklin Bitcoin ETF (EZBC) 0.29%
Fidelity Wise Origin Bitcoin Trust (FBTC) 0% (after July 31, 2024 0.25%)
WisdomTree Bitcoin Trust (BTCW) 0.0% (after the first six months 0.3%)
Valkyrie Bitcoin Fund (BRRR) 0.0% (after three months 0.49%)
Grayscale Bitcoin Trust (GBTC) 1.5%
Hashdex Bitcoin (DEFI) 0.9%
Invesco's Galaxy Bitcoin ETF has set its expense ratio at 0.0% for the first six months and first $5 billion of assets, rising to 0.39% thereafter.
Source: Bloomberg/SEC.gov
How does spot Bitcoin trade compared to Bitcoin and Bitcoin futures?
One of the main questions is how well a spot Bitcoin ETF can track Bitcoin and Bitcoin futures.
ProShares global investment strategist Simeon Hyman, who manages the largest Bitcoin futures ETF, the ProShares Bitcoin Strategy ETF (BITO), launched in October 2021, noted that Bitcoin futures ETFs track Bitcoin “pretty well.” have. But he also told me: “The spot market for Bitcoin is not yet mature. The futures market is regulated and mature. We’ll have to wait and see how well they compete.”
Another question is whether the Bitcoin ETFs trade at a premium or discount to their net asset value. In this case, the NAV is the value of the Bitcoins owned by the ETF. Some fear that the creation and redemption process agreed upon to create spot Bitcoin ETFs could result in a Bitcoin ETF trading at a premium to its net asset value.
“Some of these ETFs trade at a premium, and then as investors start to understand the nuances, we'll filter out the nuances and the minutiae,” said Reggie Brown, co-global head of ETF trading and sales at GTS Bloomberg.
Most market participants assume that premiums will be low.
Som Seif runs the Purpose Bitcoin ETF, the first Bitcoin ETF to launch in Canada in 2021.
“Our product is traded extremely efficiently, with very tight spreads,” Seif told me. “You should not see any impact on trading efficiency. There will be a wide range of players and the underlying asset is very liquid.”
Matt Hougan, CIO of Bitwise Asset Management, one of the Bitcoin ETF applicants, agreed: “The underlying market is very liquid,” he told me. “We have been in the market buying and selling Bitcoin for years. The main questions are who gets the liquidity and who wins on the spending.”
How much money will these ETFs attract?
It is not clear how much new money will be raised once a spot Bitcoin ETF is traded.
However, two ETF-related events over the past two years have helped drive interest in Bitcoin:
1) The start of Bitcoin futures ETF trading from October 2021, which helped push Bitcoin from nearly $10,000 in October this year to over $40,000 in January 2022. The largest Bitcoin futures ETF, ProShares Bitcoin Strategy ETF (BITO), was recently launched and has surpassed $2 billion in assets under management, according to ProShares.
2) Blackrock's Bitcoin ETF application on June 16, 2023 helped push Bitcoin from around $25,000 to $30,000 in a matter of days.
Brown estimated that the combined ETFs could see fairly significant inflows. “Thirty days later it could be $2 billion to $3 billion,” he told Bloomberg, estimating it could attract $10 billion to $20 billion in new assets this year.
However, given Bitcoin's current market cap of nearly $900 billion, that's not a huge inflow. The Canadian spot Bitcoin ETF, the Purpose Bitcoin ETF, has about $400 million in assets after more than two years.
What's next?
The next question, Hougan says, is whether major institutions and financial advisors will allow their investors to trade Bitcoin on their platforms.
“Just because a Bitcoin ETF has been launched doesn’t mean JP Morgan will get in,” Hougan said.
After that, Hougan said the next big events will be the Bitcoin halving in April, followed by any rate cuts by the Federal Reserve.
“Higher interest rates are bad for non-yielding assets like Bitcoin or gold,” he told me. “When you get 5% on cash, it’s tough competition.”
Note: The latest version reflects the updated fund fees from a previous version.
Correction: This story has been updated to clarify that BITB is the correct ticker symbol for the Bitwise Spot Bitcoin ETF.
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