FBTC vs. GBTC: Which Bitcoin ETF Should You Buy In 2024?
Since the start, FBTC (Fidelity Wise Origin Bitcoin Fund) and GBTC (Grayscale Bitcoin Trust) have held the #2 and #3 AUMs for spot Bitcoin ETFs since the jump. FBTC or GBTC? Which should you buy?
Drew
Jul 17, 2024July 17, 202410 min read10 minutes read
This article delves into a comprehensive comparison of FBTC and GBTC, aiming to provide clear insights for both seasoned and novice investors.
We’ll explore their distinct characteristics, benefits, performance, fees, and drawbacks, focusing on how spot Bitcoin ETFs fit into the broader context of Bitcoin investment strategies.
TL; DR: FBTC, the Fidelity Wise Origin Bitcoin Fund, offers exposure to Bitcoin through direct holdings of Bitcoin. GBTC, the Grayscale suits investors seeking exposure to Bitcoin’s price movements despite potentially higher costs and the risk of trading at premiums or discounts.
Objective: To provide investors with a cost-effective and convenient way to gain exposure to Bitcoin.
Management: Passively managed
Investment Strategy: Purchase and hold Bitcoin to mirror Bitcoin’s price performance.
Key Comparisons: Fees and Performance
Fees
FBTC: Management fee of 0.40% per annum
GBTC: Management fee of 2.00% per annum
Fidelity Wise Origin Bitcoin Fund (FBTC)
The Fidelity Wise Origin Bitcoin Fund primarily allocates its investments to holding actual Bitcoin instead of investing in Bitcoin futures contracts. FBTC offers a direct exposure method to Bitcoin and is designed to provide investors with an opportunity to gain exposure to the price of Bitcoin through a familiar investment vehicle.
FBTC Overview
Pros
Ease of Access: Provides a straightforward way for traditional investors to gain exposure to Bitcoin without needing to manage digital wallets or navigate cryptocurrency exchanges.
Regulated Product: Managed by Fidelity, FBTC is subject to regulatory oversight, providing transparency and investor protection.
Diversification: Allows investors to include Bitcoin in their diversified investment portfolios through a familiar financial instrument.
Secure Custody: The fund’s Bitcoin is stored with secure custodians, reducing the risk associated with individual cryptocurrency storage.
Liquidity: Shares of FBTC are traded on traditional stock exchanges, providing liquidity and ease of buying and selling.
Cons
Management Fees: FBTC charges management fees, which can reduce overall returns compared to holding Bitcoin directly.
Tracking Errors: FBTC’s performance may not perfectly match Bitcoin’s due to fees and market conditions.
Limited Control: Investors do not have direct control over the Bitcoin held by the fund, which can be a drawback for those who prefer to manage their cryptocurrency holdings.
Regulatory Risks: Regulation changes could impact the fund’s operations or ability to hold Bitcoin.
Market Risk: As with any investment in Bitcoin, FBTC is subject to the volatility and market risks associated with the cryptocurrency.
Potential Premiums: The share price of FBTC may trade at a premium or discount to the net asset value (NAV) of the Bitcoin held by the fund, potentially affecting investment returns.
GBTC was one of the first spot Bitcoin ETFs in the U.S. It is solely and passively invested in Bitcoin. Its shares are designed to reflect the value of BTC held by the Trust, determined by reference to the Index Price, less the Trust’s expenses and other liabilities.
GBTC allows investors to gain exposure to Bitcoin through a familiar investment vehicle without setting up an account or wallet on a cryptocurrency trading platform.
Similar to how investors use ETFs to hold other commodities, like gold or silver, they can now invest in Bitcoin through GBTC.
GBTC owns and passively holds actual Bitcoins through their Custodian, Coinbase Custody.
GBTC does not trade, buy, sell, or hold Bitcoin derivatives, including Bitcoin futures contracts.
Despite all of GBTC’s competitors lowering their spot Bitcoin ETF fees just before the SEC approved 11 spot Bitcoin ETFs, GBTC notably did not.
Direct Exposure to Bitcoin: GBTC holds actual Bitcoin, directly exposing its price movements.
Simplicity: It’s a straightforward way for investors to gain exposure to Bitcoin without the complexities of managing Bitcoin wallets and keys.
Traditional Investment Vehicle: As a trust, it can be held in certain tax-advantaged accounts, like IRAs.
Cons
Higher Fees: GBTC typically has a higher fee structure due to the costs of securely holding physical Bitcoin. Grayscale has by far the highest Bitcoin ETF fee (1.50%) of any approved Bitcoin ETF.
Premiums or Discounts: GBTC can trade at significant premiums or discounts to the underlying Bitcoin price, affecting investment value.
Less Liquidity: Being an OTC product, it lacks the same level of liquidity as a standard ETF.
ETF Conversion Risk: May be forced to “sell & rebuy” Bitcoin as part of the ETF conversion process and may involve capital gains taxes.
How to Invest in GBTC
Grayscale Bitcoin Trust ETF (Ticker: GBTC) trades on NYSE Arca and is available through your brokerage account.
FBTC vs. GBTC Comparison: Fees and Performance
Performance Metrics
FBTC’s performance is tied directly to the spot price of Bitcoin, providing a more direct correlation with Bitcoin’s worth.
GBTC’s performance is also correlated with Bitcoin’s price but is subject to premiums or discounts based on market demand for the shares.
Fees Impact
FBTC has a competitive fee structure that is attractive for cost-conscious investors.
GBTC’s higher fees cater to the Trust’s direct exposure to Bitcoin and additional security measures.
Spot Bitcoin ETF Fees and Holdings (As of July 26th, 2024)
Bitcoin ETF fee information is updated daily. For the latest updates, click here.
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.
When deciding between FBTC and GBTC, several factors must be considered to determine which investment vehicle best suits your needs and investment strategy.
Management Fees
FBTC: Understand the management fee FBTC charges and how it impacts your overall returns.
GBTC: Compare the fees associated with GBTC, which are often higher. Higher fees can erode your returns, especially if you plan a long-term investment.
Tracking Performance
FBTC: Evaluate how closely FBTC tracks the price of Bitcoin. Consider any potential tracking errors and how they might affect your investment.
GBTC: Assess GBTC’s historical performance about Bitcoin’s price. GBTC has sometimes traded at significant premiums or discounts to its net asset value (NAV).
Liquidity and Trading
FBTC: Check the liquidity of FBTC shares and how easily they can be bought or sold on traditional stock exchanges. Higher liquidity generally means easier trading.
GBTC: Consider the liquidity of GBTC shares, which can vary. Understanding market demand and trading volumes can help you plan your entry and exit strategies.
Custody and Security
FBTC: Review the security measures and custodial arrangements for the Bitcoin held by FBTC. Secure custody is crucial to protect your investment.
GBTC: Investigate GBTC’s custodial practices to ensure your assets are safely stored and protected against potential security threats.
Regulatory Environment
FBTC: Consider the regulatory framework governing FBTC, including any recent changes or anticipated regulations that could impact the fund.
GBTC: Examine the regulatory landscape for GBTC and how it complies with existing regulations. Regulatory clarity can provide investors with peace of mind.
Market Sentiment and Premiums
FBTC: Be aware of how FBTC’s share price may be traded about its NAV. Market sentiment can influence whether FBTC trades at a premium or discount.
GBTC: Historically, GBTC has experienced significant premiums and discounts. Understanding these market dynamics can help you make informed decisions about timing your investments.
By carefully evaluating these factors, you can decide whether FBTC or GBTC is the right choice for your Bitcoin investment needs.
Conclusion: FBTC vs. GBTC
This guide was designed to help investors navigate the complex landscape of Bitcoin ETFs, providing insights into the unique characteristics, benefits, and drawbacks of FBTC and GBTC.
FBTC and GBTC cater to different investor needs and risk appetites…
FBTC is preferable for those seeking an ETF structure with competitive fees and direct exposure to Bitcoin.
GBTC suits investors seeking exposure to Bitcoin’s price movements despite potentially higher costs and the risk of trading at premiums or discounts.
With all the complexities and downsides, is there a great alternative to FBTC and GBTC?
YES!
Don’t settle for mere exposure through a financial product like FBTC or GBTC!
Whether you invest through Swan’s IRA product, or just recurring buys — Swan ensures you are in control of your Bitcoin journey and own actual Bitcoin. If you are looking to own real Bitcoin and self custody or invest in a tax-free BTC IRA, Swan is your best choice!
For more information on FBTC and GBTC, you can visit their respective pages on Fidelity and Grayscale (Fidelity) (Stock Analysis) (ETF.com).
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Drew
Drew, a class of 2013 Bitcoiner, is a Research Analyst for Swan Bitcoin.
He has worked in institutional VC/PE, FinTech, and DLT consulting for over six years. He also brings over twelve years of experience working with national nonprofits and start-ups in education and software development in several leadership roles.
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