The Securities and Exchange Commission (SEC) has given its approval for the launch of the first spot Bitcoin exchange-traded funds (ETFs). However, it is important to note that SEC Chair Gary Gensler has made it clear that the approval does not constitute an endorsement of Bitcoin. Gensler views Bitcoin as a speculative and volatile asset.
Despite this cautionary stance, proponents of Bitcoin believe that the introduction of these new ETFs will attract billions of dollars into digital assets. This is because financial advisors and institutional investors will now have the opportunity to access the largest cryptocurrency through a familiar investment vehicle. Retail investors may also benefit from the launch of these ETFs, as they could provide easier, cheaper, and safer ways to buy Bitcoin.
When Will Bitcoin ETFs Be Available?
What Are the Costs of Bitcoin ETFs?
Given that around a dozen issuers are seeking to launch spot Bitcoin ETFs simultaneously, fierce fee competition was anticipated. However, the Bitcoin ETF race has surpassed expectations.
The fund with the lowest fee identified in a prospectus thus far is from Bitwise Asset Management, charging an annual expense ratio of 0.2%. ARK Invest and 21Shares will have a 0.21% fee for their sponsored fund, while VanEck, BlackRock, and Fidelity come in at 0.25%.
Furthermore, some issuers, such as Bitwise, ARK/21Shares, and Invesco, plan to completely waive their fees for the first $1 billion to $5 billion in assets under management for a period of six months.
Expanding Access to Bitcoin Investments
The Grayscale Bitcoin Trust is currently the most expensive fund on the market, but it plans to convert into an ETF in the near future. Despite its high expense ratio of 2%, the trust trades like a closed-end trust, causing its price to differ from the value of its underlying assets. However, once the conversion is complete, Grayscale intends to reduce its annual fee to 1.5%. Traders who frequently move in and out of Bitcoin may still find value in Grayscale’s fund due to its substantial asset level, which increases liquidity and tightens bid-ask spreads.
It is worth noting that all the funds mentioned may alter their fees prior to or shortly after their launch. In fact, some issuers have already filed fee reductions even before their official debut.
When considering Bitcoin investments, two key factors come into play: cost and convenience.
For small investors who purchase Bitcoin through various trading platforms, fees and spreads often exceed 1% of their total purchase. However, many stock platforms, such as Robinhood Markets and Fidelity, offer zero-commission trades, making Bitcoin ETFs significantly cheaper for these investors.
Additionally, using an ETF proves to be more convenient for many investors. Rather than going through the hassle of opening a separate account on platforms like Coinbase solely for purchasing Bitcoin, investors can keep their Bitcoin holdings within the same account as their other assets. This approach eliminates concerns around losing passwords or falling victim to fraud—an issue prevalent in the crypto world that often leads to permanent loss of investments.
Furthermore, Bitcoin ETFs can be held within retirement accounts, providing an appealing option for investors concerned about capital gains taxes. It’s important to note that any capital losses incurred within these retirement accounts won’t offset their tax bills.
The challenges associated with holding Bitcoin in separate accounts have deterred many institutional investors and financial advisors. Nevertheless, fund companies are hopeful that the introduction of Bitcoin ETFs will attract billions of dollars in new capital.
Overall, the expansion of Bitcoin investment opportunities through ETFs aims to enhance accessibility and address existing concerns within the market.
Written by Joe Light