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Bitcoin ETF Price War – Issuers Battle Over Lowest Fees

Last Updated January 9, 2024 11:31 AM
James Morales
Last Updated January 9, 2024 11:31 AM

Key Takeaways

  • Prospective spot Bitcoin ETF issuers have revealed the fees they intend to charge.
  • Among ETF hopefuls, Bitwise has proposed the lowest sponsor fee.
  • Ranging between 0.24% and 1.5%, in the long run, different ETF fees could significantly impact returns.

Exchange Traded Funds (ETFs) charge investors a management fee, also known as a sponsor fee. This charge accrues daily and is usually deducted from the fund’s assets on a monthly or quarterly basis. In the most competitive ETF markets, less than 0.1% tends to separate different products. Small differences in fees are one of the most crucial factors investors consider before choosing between different funds.

With the first US-listed spot Bitcoin ETFs potentially hitting the market any day now, 11 prospective issuers have submitted what could be their final filings to the United States Securities and Exchange Commission (SEC), revealing the fees they plan to charge investors upon the launch of their respective funds. 

Bitwise ETF Undercuts Rivals with 0.24% Sponsor Fees

When conceived as a race to the bottom, the ETF price war has been won by Bitwise. It has narrowly edged out the closest competition with a sponsor fee offer of just 0.24%. In joint second place, funds issued by VanEck and Ark Invest/21Shares intend to charge fees of 0.25% per year. 

Initially, Ark Invest/21Shares had reportedly planned to charge a 0.8% management fee. However, the firm slashed the fees by more than half in response to BlackRock’s lower 0.3% rate, reflecting the latter’s role in setting the benchmarks by which smaller rivals are often judged.  

At the other end of the spectrum, Grayscale plans to charge fees of 1.5% if it gets the green light to convert the Grayscale Bitcoin Trust (GBTC) into an ETF. While the proposed rate is a step down from the 2% GBTC investors are currently charged, it has been significantly undercut by rival offers.

Fund Managers Offer Fee Waivers in a Bid to Spur Investment 

To encourage investment in new ETFs, asset managers often reduce or waive fees at the start of the investment period. Among prospective Bitcoin ETF issuers, Invest/21Shares, Bitwise and Invesco/Galaxy all offer 6 to 12 month fee waivers on the first $1 or $5 billion invested, depending on the ETF. Meanwhile, BlackRock offers 12 months of reduced fees.

While ETF fee waivers are an established promotional tool, over an investment period of a decade or more, the savings on offer tend to be small in comparison to the impact of different fees.

How Much Difference Do Fees Make

For an investment of $1 million with an annual return of 7%, Bitwise’s proposed ETF would incur $4,324 in fees over the course of a decade. Meanwhile, the same investment in Grayscale’s more expensive alternative would rack up $24,286 in fees. 

In a scenario in which the BTC market performs better, the effect is even more pronounced. For example, with annual returns of 25%, a $1 million investment in Bitwise’s ETF would be worth nearly $882,000 more than an equivalent Grayscale investment after 10 years. 

Besides sponsor fees, there are other costs associated with ETFs for investors to consider. 

Because fund managers only issue or redeem baskets of shares, purchasing shares directly from the issuer is out of reach for many retail investors. For example, BlackRock intends to initially sell baskets of 40,000 shares for around $100,000 each.

Once issued ETF shares trade on various securities exchanges, which each have different fee models. As well as passing trading fees to their clients, brokers tend to charge a commission which also affects the end price paid by investors. 

In general, investors prefer ETFs with more assets under management, which are usually more liquid. More established asset managers like BlackRock also have a better reputation for closely tracking the price of the underlying asset, further boosting their appeal. 

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