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Q1 Spot Bitcoin ETF Key Takeaways
The initial three months of trading for spot Bitcoin ETFs have ended, with the eleven offerings approved by the SEC collectively attracting about $12.1 billion in inflows.
Blackrock’s IBIT has emerged as the leading beneficiary, securing $13.9 billion in flows since it started trading in January.
IBIT is the fastest growing ETF in the history of ETFs.
On March 27th, BlackRock CEO Larry Fink appeared on Fox Business to discuss the wild success of its spot Bitcoin ETF product, IBIT. Fink’s spot Bitcoin ETF comments begin at the 10 minute, 15 second mark.
More than 30 Bitcoin ETFs collectively owned 1,002,343 BTC as of May 24.
BlackRock (IBIT) became the fastest ETF to reach $20B — added Bitcoin to its Strategic Income and Strategic Global Bond Funds.
BlackRock’s iShares Bitcoin Trust has become the world’s largest Bitcoin fund, amassing nearly $20 billion in assets since its U.S. listing in January.
This ratio measures the fund’s operational cost, expressed as a percentage of the fund’s assets. It directly affects the returns you might expect from the investment, as higher expenses mean lower net returns.
These are all the fund’s annual expenses, including management, administration, and compliance fees. These expenses are expressed as a percentage of the fund’s assets and can significantly impact the returns on your investment.
The Simplify Bitcoin Strategy PLUS Income ETF has total annual fund operating expenses of 11.18% with other costs, primarily composed of interest expense, estimated at 10.33% for the fund’s initial fiscal year.
This is the price difference between buyers' willingness to pay and sellers' acceptance. It’s an indirect cost for investors.
The bid-ask spread for a Bitcoin ETF represents the difference between the highest price a buyer is willing to pay (bid) and the lowest price a seller is willing to accept (ask). This spread is crucial for investors, as it can affect the overall cost of trading the Bitcoin ETF.
The size of the bid-ask spread in Bitcoin ETFs can vary based on several factors, including:
The liquidity of the Bitcoin ETF.
The underlying assets it holds.
Highly liquid Bitcoin ETFs usually have tight bid-ask spreads, often just a few pennies apart. Bitcoin ETFs traded less frequently or with less liquid underlying assets can exhibit wider bid-ask spreads.
Example: The SPDR S&P 500 ETF Trust (SPY) is known for its tight bid-ask spread, often around 0.0032%. This is mainly due to its high liquidity.
The average bid/ask spread for the more than 2,900 ETPs (Exchange-Traded Products) listed on U.S. exchanges is about 0.52%. However, the median spread is much lower (i.e., around 0.20%).
Custodian fees ensure your Bitcoin remains safe (reason: Bitcoin needs secure storage to prevent theft or loss). These fees can vary depending on the provider and the assets being stored.
FAQs on spot Bitcoin ETFs
What exactly is a spot Bitcoin ETF?
The first thing to understand is exactly what an Exchange-Traded Fund (ETF) means.
An exchange-traded fund (ETF) is a type of pooled investment security that operates much like a mutual fund. Typically, ETFs track or seek to outperform a particular index, sector, commodity, or other asset.
ETFs differ from mutual funds in that orders are executed throughout a trading day, whereas mutual fund orders can only be executed after market hours.
This means that you can place a buy or sell order with your broker during trading hours, and it will execute it. A mutual fund order placed during the day will be executed after the market closes.
Now, let’s dive into spot Bitcoin ETFs. These exchange-traded funds directly track the price of Bitcoin, primarily by holding a large amount of the cryptocurrency itself.
You can think of them as similar to a spot gold ETF, which holds physical gold bullion on behalf of its shareholders.
Why do spot Bitcoin ETFs matter?
Spot Bitcoin ETFs have finally arrived, and that’s big news for Bitcoin. In the past, Bitcoin has often been (mistakenly) lumped in with “crypto” as something mysterious and risky. Bitcoin ETFs change this narrative since Bitcoin is now being sold by Wall Street to Main Street.
Basically, Bitcoin is now legitimate in the eyes of traditional finance. As a result, these ETFs will become an initial touchpoint for many future Bitcoiners. In effect, Wall Street will be the advertising engine for a new generation of Bitcoin investors.
What’s the difference between spot and futures Bitcoin ETFs?
Spot Bitcoin ETFs directly hold Bitcoin, and their value reflects the current price of Bitcoin. Futures Bitcoin ETFs invest in contracts that speculate on the future price of Bitcoin, giving purchasers price exposure without direct ownership. One issue with futures ETFs is they can have price discrepancies due to the dynamics of the futures market.
Are simpler, mainly focusing on securely holding Bitcoin. They are more accessible and understandable for the average investor.
Futures Bitcoin ETFs
Are more complex, involving futures contracts and associated roll costs. They require a deeper understanding of futures markets and their risks.
When did spot Bitcoin ETFs become available?
On Jan. 10, 2024, the U.S. SEC approved 11 spot Bitcoin ETFs, the first spot Bitcoin ETFs ever, including ones from Fidelity, BlackRock and Invesco. These are the first cryptocurrency funds to trade on a major exchange and hold Bitcoin directly.
“Bitcoin is the world’s first successful decentralized cryptocurrency and payment system, launched in 2009 by a mysterious creator known only as Satoshi Nakamoto.”
The word “cryptocurrency” refers to a group of digital assets where transactions are secured and verified using cryptography — a scientific practice of encoding and decoding data. Those transactions are often stored on computers distributed worldwide via a distributed ledger technology called blockchain.
They’re easy to buy. You don’t have to worry about creating a cryptocurrency exchange account, using a blockchain wallet, or figuring out crypto taxes.
“Many investors can’t currently get exposure,”said Peter Eberle, the Chief Investment Officer of crypto investment firm Castle Funds.
“For example, many people with 401(k)s, IRAs, and similar accounts can’t easily access Bitcoin. These investors will be able to allocate funds going forward. This will drive demand in coming years.”
Also, there’s more regulation provided since an ETF is audited, monitored, and tracked.
Cons of buying Bitcoin ETFs
With ETFs, you don’t actually own or have direct access to Bitcoin. An ETF means you own shares in a fund that holds Bitcoin. When you hold your own Bitcoin, you can do whatever you want with it.
Also, you’re paying fees. ETFs mean you wind up paying Wall Street pros (via fund management fees/expenses) for something that you could do on your own. On the other hand, you can buy Bitcoin directly (for example, via Swan) in just a few clicks.
It’s also worth noting that Bitcoin ETFs may not track the price of Bitcoin exactly. There could be disparities between the performance of Bitcoin and an ETF.
Also, there may be custodianship issues since most spot Bitcoin ETFs rely on a third-party custodian to store their Bitcoin (usually Coinbase). If Coinbase were to, say, run into financial woes or get penalized by the government for some reason, it could potentially put Bitcoin ETFs at risk?
Will these fees remain the same?
When it comes to fees, this newly minted spot Bitcoin ETFs are navigating the equilibrium between supply and demand. Currently, almost all of the Bitcoin ETF funds sport fees ranging from 0% to 0.25% (Grayscale’s is an outlier at 1.5%).
That said, there may be ongoing volatility with these fees since Bitcoin ETFs are brand-new products. In fact, we’ve already seen a battle to lower fees among them — Ark-21Shares, Valkyrie, Invesco-Galaxy, and others showed higher fees initially but lowered them later.
Bitwise, which opened with some of the lowest fees, dropped even lower, going from 0.24% to 0.20%.
On February 14, news from ETF.com revealed that Fidelity had cut the total expense ratio (TER) for one of its products from 0.75% to 0.35%. This reduction, however, pertains to Fidelity’s European offering, the Fidelity Physical Bitcoin ETP, and not to its US-listed Fidelity Wise Origin Bitcoin Fund (FBTC).
VanEck announced plans to lower the fees for its spot Bitcoin ETF, as detailed in a document submitted to the U.S. SEC on February 15.
VanEck also announced it would temporarily eliminate the management fee for its spot Bitcoin ETF, HODL, due to its lower assets than competitors. This fee waiver will last until March 31, 2025, or until the fund’s assets reach $1.5 billion, whichever comes first.
Why is Grayscale charging more at 1.50%?
CEO Michael Sonnenshein said Grayscale’s experience in dealing with crypto justifies the higher price point of its ETF:
“We’re a crypto specialist. We’ve weathered all different types of speed bumps and advancements within the crypto ecosystem. For a lot of these asset managers and issuers, this is the first time they’re going to be dealing with the complexities that go into running these types of products.”
These ETF issuers are viciously competing with one another for capital because, in the ETF world, liquidity is king. Typically, the largest ETF in an asset class dominates once it gains a significant market share and gathers momentum.
From there, they have the pricing power to set their fees as they see fit. Once an ETF wins, it’s very difficult for another to take its crown.
So which Bitcoin ETF should I get?
It depends.
Bryan Armour, editor of Morningstar, argues that Buy-and-Hold investors should focus on fees while active ETF traders should prioritize liquidity. He writes:
“Investors can pick the best option for themselves by focusing on three fund criteria: fees, liquidity, and fund trading costs. Buy-and-hold investors should emphasize fees, those actively trading ETFs should focus on liquidity, and everyone should keep an eye on how trading costs affect performance.”
Also, keep in mind buying Bitcoin directly may still be the best answer. Buying real Bitcoin — which you can hold for the long term free of annual fees and do with as you please, whenever you want — keeps you in charge.
It’s tough to say. It all depends on the success of the firms promoting these ETFs and the demand for the product. Advertising has just begun, and the conservative nature of traditional finance means many advisors and investors will want to see a track record for ETFs before increasing allocations.
In fact, Grayscale Investments CEO Michael Sonnenshein told CNBC that most of the approved Bitcoin ETFs won’t survive saying,
“Two to three of the spot Bitcoin ETFs will maybe obtain some kind of critical mass” of assets under management, but the others may be pulled from the market. I don’t ultimately think that the marketplace will have these 10 spot products we find ourselves having.”
Spot Bitcoin ETFs smashed records on their first day trading seeing over 4.6 billion in trading volume, the highest ever for an ETF launch.
Swan Bitcoin Daily Series
To stay on top of all the daily inflow and outflow changes, check out our new Daily Bitcoin Show, hosted by Dante Cook.
You can watch his most recent episode below. Find the entire playlist from the series here.
Which Bitcoin ETF has the cheapest fees?
Franklin Templeton reduced the fee of its Bitcoin ETF to become the cheapest among the new investment products. Until Aug. 2, 2024, the fund manager will also waive off fees for its ETF till the fund reaches AUM of $10 billion.
What are the best reasons to buy Bitcoin ETFs?
Bitcoin ETFs offer a more regulated and mainstream way to access Bitcoin if that’s important to you.
Unlike the direct ownership of Bitcoin, which involves technical challenges such as managing wallets and cryptographic keys, investing in ETFs offers a more conventional and straightforward way to gain exposure to Bitcoin’s market movements.
What will happen to Bitcoin now that these ETFs have been approved?
It means Bitcoin is leveling up. As Swan Bitcoin CEO Cory Klippsten told Yahoo Finance:
“The top-of-funnel for investor class is going to change from something that is contrary to Bitcoin, which is all of the crypto scams and pump-and-dumps of the last six years, FTX and the like… Now you’re going to see a new era where some of the most credible, some of the most well-funded, trust brands in the world are going to be shouting from the rooftops with tens, maybe hundreds of millions of dollars of marketing expense, just talking about Bitcoin.”
Bitcoin was designed as peer-to-peer money without the need for intermediaries. When opting into a Bitcoin ETF, investors can leverage price action, but at the cost of self-sovereignty and long-term returns.
We urge you to research to fully understand the trade-offs between owning Bitcoin and currently purchasing a Bitcoin ETF.
If you don’t think a Bitcoin ETF or private key cold storage wallet option suits you, perhaps a Bitcoin IRA and the tax advantages it presents do. If you need assistance or would like to discuss your individual retirement portfolio with one of our IRA specialists book a call here.
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Matt Ruby
Matt Ruby is a seasoned content writer helping educate million worldwide about Bitcoin for Swan. Matt work with tech companies to create words, videos, and other content that makes them seem human. He specializes in taking boring/drab tech topics and making them interesting, educational, funny, and accessible to regular people.
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