Bitcoin ETFs could hit the market this week. Here's how much you'll have to pay in fees and why it might be worth it.

Thirteenth place Bitcoin (BTC 0.07%) ETFs are currently awaiting approval from the Securities and Exchange Commission (SEC).

To date, the SEC has rejected similar exchange-traded fund (ETF) applications, but an appeals court ruled that the SEC's rejection was “arbitrary and capricious.”

The approval of a spot Bitcoin ETF would be big news for investors of all stripes. Whether you're heavily invested in cryptocurrencies or simply putting money away in a retirement account, the SEC's decision is worth paying attention to. It could open the door for many more investors to easily invest their money in the emerging crypto asset class.

Why the new generation of Bitcoin ETFs is big news

Existing Bitcoin funds like that Grayscale Bitcoin Trust Use derivatives like futures contracts to track the price of Bitcoin. However, these funds cannot redeem Bitcoin futures for the underlying asset, which may result in prices that differ greatly from Bitcoin's actual value. Grayscale Bitcoin Trust was trading at a nearly 50% discount to its net asset value at the end of 2022.

GBTC discount or premium on NAV data from YCharts

A spot Bitcoin ETF, on the other hand, will actually hold Bitcoin. This means the ETF can track the value of the cryptocurrency much more accurately.

Additionally, because the funds hold Bitcoin instead of a derivative, it is more transparent for investors about what they are buying. Each share of the ETF corresponds to a certain amount of Bitcoin held by the fund.

However, spot Bitcoin ETFs still collect fees from shareholders in the form of expense ratios. And with so much interest in the new generation of ETFs, it's important for investors to pay attention to these fees and what they mean for their investments.

Here's how much you'll pay in fees to own a Bitcoin ETF

The following four fund companies have detailed how much they plan to charge investors who hold their respective Bitcoin ETFs.

Fund	Expense ratio
Faithful wise origin	0.39%
Invesco galaxy	0.59%
Valkyrie	0.8%
ARK 21 shares	0.8%

Data source: SEC filings.

Invesco Galaxy plans to waive the fee on the first $5 billion of invested assets for the first six months. This is not an unusual strategy for new funds entering a competitive market. However, for long-term investors, it may not be worth buying shares in the Invesco fund and switching to a cheaper fund after the free period has expired, taking taxes into account.

It is also worth noting that most of the proposed ETFs do not detail their fees. Blackrock notably missing from the list above. Given the size of the fund company, investors should expect a relatively low fee.

Most importantly for investors, the published fees are all well below the expense ratios for existing Bitcoin investment products. Grayscale charges a 2% management fee. The ProShares Bitcoin Strategy ETF charges a fee of 0.95%. So investors will not only get a fund that better reflects Bitcoin, but it will also be cheaper.

Additionally, there are a few other reasons why investors may want to pay the fees for a spot Bitcoin ETF.

The advantages of Bitcoin ETFs

For many investors, a spot Bitcoin ETF is the easiest and safest way to invest in the cryptocurrency.

While it is easy enough to open an account with a crypto exchange and buy Bitcoin, it is not as easy to open a retirement account with a crypto exchange. You will need to set up your own Individual Retirement Account (IRA) and use it to open and fund an account at a cryptocurrency exchange. And that's not cheap. For most investors who simply want to use Bitcoin for portfolio diversification, an ETF makes much more sense despite the fees.

You also have the advantage of being able to keep your Bitcoin investment in the same account as your other investments. This gives you a better overview of your overall portfolio without having to aggregate everything across multiple accounts.

For many investors, the technical hurdles to purchasing and safely holding Bitcoin can be burdensome. With an ETF, the managing institution takes care of these technical aspects. The institution will likely employ multiple levels of security and cold storage to maximize the security of the Bitcoins it holds for investors.

Ultimately, the fees of the new spot Bitcoin ETFs are extremely cheap, even compared to standard index funds. Take this for example Invesco QQQ Trustthat haunts them Nasdaq 100 Index. An expense ratio of 0.2% is calculated. So paying just 0.39% for a Bitcoin ETF won't break the bank.

Adam Levy holds positions in Bitcoin. The Motley Fool has positions in and recommends Bitcoin. The Motley Fool has a disclosure policy.

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