It took more than a decade to complete, but it was just right Bitcoin (BTC -7.90%) ETFs are available here.
The SEC approved 11 spot Bitcoin ETF applications after the market closed on January 10, sparking fierce competition for investor funds. Many of the issuers that offer ETFs waive their fees for a certain period of time in order to attract more investors in advance. However, with so many options to choose from, investors need to know what's available and which, if any, of the new Bitcoin exchange-traded funds (ETFs) they should buy.
Here's what investors need to know.
Meet the new class of Bitcoin ETFs
The 11 Bitcoin ETFs come from a number of well-known names in both traditional finance and the crypto industry. The composition of the asset managers makes for a very interesting group.
The table below lists the ETFs, their expense ratios, and introduction fee exemption.
| Surname | Expense ratio | Fee exemption |
|---|---|---|
| Bitwise Bitcoin ETF (NYSEMKT:BITB) | 0.20% | 0% for the first six months on assets up to $1 billion |
| ARK 21Shares Bitcoin ETF (ARKB -6.20%) | 0.21% | 0% for the first 6 months on assets up to $1 billion |
| Fidelity Wise Origin Bitcoin Fund (NYSEMKT:FBTC) | 0.25% | 0% until July 31, 2024 |
| Valkyrie Bitcoin Fund (BRRR -6.17%) | 0.25% | 0% for the first three months |
| iShares Bitcoin Trust (NASDAQ:IBIT) | 0.25% | 0.12% for the first 12 months for assets up to $5 billion |
| VanEck Bitcoin Trust (NYSEMKT:HODL) | 0.25% | None |
| Franklin Bitcoin ETF (NYSEMKT:EZBC) | 0.29% | None |
| Wisdomtree Bitcoin Trust (BTCW -5.50%) | 0.30% | 0% for the first six months on assets up to $1 billion |
| Invesco Galaxy Bitcoin ETF (BTCO) | 0.39% | 0% for the first six months on assets up to $5 billion |
| Hashdex Bitcoin ETF (DEFI -6.51%) | 0.90% | None |
| Grayscale Bitcoin Trust (GBTC -5.19%) | 1.5% | None |
Table source: Author. Data source: company websites.
The last two entries in the table above have been around for a long time. The Hashdex Bitcoin ETF is transforming from a Bitcoin futures ETF to a spot Bitcoin ETF. The Grayscale Bitcoin Trust is transforming from a closed trust that owned Bitcoin tokens to a spot Bitcoin ETF. They have the advantage of keeping all of their current assets under management, which allows them to maintain higher fees than the new entrants competing for new funds.
There have already been big steps among new entrants to reduce their expense ratios and waive fees. The Fidelity Wise Origin Bitcoin Fund initially filed with the SEC saying it would charge a fee of 0.39% of assets under management. The rate has since been reduced to 0.25%, with fee waivers until July 2024. Valkyrie and ARK reduced their ETF fees from 0.80% to 0.25% and 0.21%, respectively, and offered generous waivers for early investors. There could still be a lot of movement as issuers jockey for position.
Which Bitcoin ETF, if any, should you buy?
All of the ETFs mentioned above work in virtually the same way. They may differ in a few small details, but the overall mechanism of how they work is identical. Therefore, a fund's expense ratio is one of the most important factors when deciding which fund is best for you.
That could make the Bitwise and ARK 21Shares ETFs the most attractive, with their expense ratios of 0.20% and 0.21%, which are also waived for the first six months.
But investors should disregard Fidelity or not Blackrock'S (BLK 0.88%) iShares. Both are great investment managers who know how to attract assets for their funds. They were very competitive with their fees for traditional ETFs. In the long term, they could offer better rates than smaller competitors. Since the current interest rate difference between these funds and the market leaders is already quite small, it may make sense for investors who want to hold their Bitcoin ETFs for a longer period of time to simply buy one of these funds today.
But owning a Bitcoin ETF isn't for everyone.
Image source: Getty Images.
The biggest use of Bitcoin ETFs for retail investors will be in retirement accounts like IRAs. Investing in Bitcoin directly within an IRA requires opening an expensive, self-directed IRA and then opening a cryptocurrency exchange account for that IRA. For someone who wants to buy Bitcoin in their retirement account, it is far cheaper to buy one of the newly launched ETFs.
For investors who simply want to purchase Bitcoin in a taxable account, it may be better to purchase the cryptocurrency directly from an exchange.
However, it will take time for this strategy to pay off. Coinbase (COIN -7.35%), the largest cryptocurrency exchange in the US, charges up to 0.6% for orders on its platform. Therefore, investors may need to hold their Bitcoin for around three years to offset the fees charged by the lowest-fee ETFs. While institutional investors who manage funds for the ETF trusts also have to pay to buy and sell Bitcoin, they get big discounts because they bring in so much volume.
Additionally, a certain level of technical expertise is required to purchase and store Bitcoin securely. It is also very convenient to keep your Bitcoin exposure in the same account as the rest of your securities investments. This quality alone may be worth the fees for some investors.
Overall, the new Bitcoin ETFs offer many investors interested in Bitcoin a cost-effective and convenient way to get into the crypto asset.
Adam Levy holds positions in Bitcoin. The Motley Fool has positions in and recommends Bitcoin and Coinbase Global. The Motley Fool has a disclosure policy.
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