Currently, there are thirteen Bitcoin ETFs awaiting approval from the Securities and Exchange Commission (SEC). This is a significant development as the SEC has previously denied similar ETF applications, but an appellate court has deemed their rejection as “arbitrary and capricious.”
The approval of a spot Bitcoin ETF would be groundbreaking for investors of all types. Whether you are heavily invested in cryptocurrency or simply have a retirement account, it is essential to pay attention to the SEC’s decision. It could open the door for many more investors to easily invest in the emerging asset class of crypto.
Why the new breed of Bitcoin ETFs is a big deal
Existing Bitcoin funds, such as the Grayscale Bitcoin Trust, use derivatives like futures contracts to track the price of Bitcoin. However, these funds cannot actually redeem Bitcoin futures for the underlying asset, resulting in prices that often diverge from the actual value of Bitcoin. For example, the Grayscale Bitcoin Trust traded at nearly a 50% discount to its net asset value in late 2022.
A spot Bitcoin ETF, on the other hand, will hold actual Bitcoin. This means that the ETF will be able to track the value of the cryptocurrency much more closely. Additionally, since the fund will hold Bitcoin instead of a derivative, it will be more transparent for investors to understand what they are buying. Each share of the ETF will correspond to a certain amount of Bitcoin held by the fund.
However, it is important to note that spot Bitcoin ETFs will still charge fees for shareholders in the form of expense ratios. With such high interest in these new ETFs, it is crucial for investors to pay attention to these fees and understand their impact on their investment.
How much you will pay in fees to own a Bitcoin ETF
Several fund companies have disclosed their plans for fees for their respective Bitcoin ETFs. Fidelity Wise Origin will charge a 0.39% expense ratio, Invesco Galaxy will charge 0.59%, Valkyrie will charge 0.8%, and ARK 21Shares will also charge 0.8%. Invesco Galaxy has announced that they will waive the fee for the first six months for the first $5 billion in invested assets, a common strategy for new funds entering a competitive market.
However, it may not be worth it for long-term investors to try and buy shares of the Invesco fund and then switch to a lower-cost fund after the free period expires, considering the potential tax implications. It is also worth noting that most of the proposed ETFs have not yet disclosed their fees, with Blackrock being notably absent from the list. As a large fund company, it is expected that Blackrock will offer a relatively low fee.
Moreover, it is crucial to note that the published fees for these ETFs are significantly lower than the expense ratios for existing Bitcoin investment products, such as Grayscale and ProShares, which charge 2% and 0.95% management fees, respectively. This means that not only will investors get a fund that tracks Bitcoin better, but it will also be cheaper.
The benefits of Bitcoin ETFs
For many investors, a spot Bitcoin ETF will be the most convenient and secure way to invest in the cryptocurrency. While it is possible to open an account at a crypto exchange and buy Bitcoin, opening a retirement account with a crypto exchange is much more complicated and expensive. Therefore, for most investors looking to use Bitcoin for portfolio diversification, an ETF makes more sense despite the fees.
Additionally, holding your Bitcoin investment in the same account as your other investments provides a better overview of your overall portfolio, without the need to aggregate across multiple accounts. For many investors, the technical barriers involved in buying and securely holding Bitcoin can be daunting. However, with an ETF, the managing institution will take care of these technical aspects, likely using multiple levels of security and cold storage to ensure the safety of the Bitcoin held for investors.
In conclusion, the fees for the new spot Bitcoin ETFs are relatively reasonable, even when compared to standard index funds. For example, the Invesco QQQ Trust, which tracks the Nasdaq 100 index, charges an expense ratio of 0.2%. This means that paying as little as 0.39% for a Bitcoin ETF is not a significant expense. It is also worth noting that the author holds positions in Bitcoin and that the Motley Fool has positions in and recommends Bitcoin. The Motley Fool maintains a disclosure policy.
