Spotting the Differences in the Spot Bitcoin ETFs

Dear

Earlier this year, the Securities and Exchange Commission approved all outstanding applications for a spot Bitcoin (BTC) ETF.

That means that, at the very start of 2024, investors went from having zero options to getting direct exposure to Bitcoin through a brokerage account to having 11 different options to choose from!

I’ve written extensively about how these ETFs are bullish on the broad crypto market and how they function as a major catalyst for new adoption.

But we’ve yet to dive into the differences between them. Because not all ETF offerings are the same. The choice of which to invest in is a bit more complex than that.

So, if you’re interested in gaining leverage to Bitcoin through these ETFs, there are four main things to consider when choosing which to buy:

1. Management Fees

The management fees associated with these ETFs vary, which can significantly affect the overall cost of investment over time.

Lower fees are generally more attractive to investors, as they translate to higher net returns as there’s less you have to pay to the middleman.

Here's a summary of some of the key players and their fees:

• Franklin Templeton Digital Holdings Trust (EZBC): Charges a 0.19% management fee.

• Bitwise Bitcoin ETF (BITB): Has a management fee of 0.20%, with the fee waived for the first six months of trading or the first $1 billion in fund assets, whichever comes first.

• Ark 21Shares Bitcoin ETF (ARKB): Comes with a 0.21% fee, also waived for the first six months of trading or the first $1 billion in fund assets.

• iShares Bitcoin Trust (IBIT), VanEck Bitcoin Trust (HODL), Fidelity Wise Origin Bitcoin Fund (FBTC), WisdomTree Bitcoin Fund (BTCW), and Invesco Galaxy Bitcoin ETF (BTCO): All have a management fee of 0.25%.

• But some also offer different fee incentives.

• IBIT offers a reduced fee of 0.12% for the first 12 months of trading or the first $5 billion in fund assets. FBTC has its fee waived until Aug. 1, 2024. BTCW and BTCO will waive fees for the first six months of trading, or the first $1 billion and $5 billion in fund assets, respectively.

• Valkyrie Bitcoin Fund (BRRR): Charges a 0.25% fee with no waiver mentioned.

• Grayscale Bitcoin Trust (GBTC): Has a significantly higher management fee of 1.50% with no waiver mentioned.

Just like with transaction fees for crypto swaps, you should be mindful of how ETF fees will impact your overall return.

2. Custodial Arrangements

The choice of custodian can influence an investor’s confidence in the security of the ETF’s Bitcoin holdings.

High-profile custodians like Coinbase (COIN) and BitGo are known for their robust security measures, which might reassure investors concerned about the safety of their investments.

Coinbase and BitGo are among the most reputable crypto asset custodians in the industry, and it is no surprise that most issuers chose one or the other.

Of the bunch, two stand out as notable in how they’ve chosen their custodians.

First is Valkyrie's BRRR. It has both Coinbase and BitGo as custodians, marking it as the first spot Bitcoin ETF to have more than one.

The presence of multiple custodians may enhance perceived security.

Second is Fidelity, which is the only ETF issuer that has chosen self-custody for its ETF, using Fidelity Digital Asset Services as the custodian of the fund’s underlying Bitcoin assets.

3. Issuer Reputation

The reputation of the ETF issuer is another critical consideration. Well-established financial institutions with a track record of managing successful investment products may offer more assurance to investors, potentially influencing their decision to invest in one ETF over another.

The backing of a reputable issuer might also affect the ETF's liquidity and performance in the market.

In this area, BlackRock (BLK) stands heads and shoulders above the competition. 

It is the world’s largest asset manager, with over $9 trillion under management. It also has an impressive approval rate for its ETFs of 99.8%. Their iShares Bitcoin Trust (IBIT) will benefit from this track record.

Another worthwhile contender in this space is Fidelity, marking two categories where it stands out.

Fidelity is a well-established financial services company with a significant history in investment management. Its reputation, backed by its extensive experience and institutional-grade custody solutions, positions FBTC as a credible and secure investment option in the cryptocurrency arena.

4. Market Reception and Performance

The initial market reception and subsequent performance of the ETF, including assets under management and trading volume, might also influence investors.

High AUM and trading volumes can be indicators of investor confidence and market liquidity, which are essential for the execution of large trades without significantly impacting the ETF's price.

In this category, the clear winners are Grayscale’s GBTC with $27.3 billion in Bitcoin under management, with BlackRock’s IBIT in a distant second with $8.8 billion in AUM, and Fidelity’s FBTC in a close third, with $6.3 billion under management.

All these are good choices when it comes to market performance.

I do urge you to keep in mind that Grayscale has been bleeding assets since Jan. 10, though the trend has slowed considerably. That selling was mostly due to investors moving to an ETF with lower fees and a result of FTX selling its GBTC shares to pay off its outstanding debts. 

Still, it is a stark contrast to BlackRock and Fidelity’s ETFs which have been gaining steadily week after week.

So, which ETF should you pick?

Based on the information above, my top picks would be either Fidelity’s FBTC or BlackRock’s IBIT.

Both check all the boxes of what to consider before investing. They have competitive fees, solid custody solutions, stellar reputations as asset managers, and have received the bulk of the inflows we’ve seen since the spot ETFs launched.

Ultimately, though, the choice is yours. I urge you to do your own research when deciding which, if any, Bitcoin ETF has a place in your portfolio.

And for all your Bitcoin updates, be sure to check in with me here at RAMAC Digital.

Best regards,

Dr. Somto.