It was more than a decade in the making, but spot Bitcoin (BTC -2.40%) ETFs are here.
The SEC approved 11 spot Bitcoin ETF applications on Jan. 10 after the market closed, kicking off fierce competition for investor funds. Many of the issuers providing the ETFs are waiving their fees for a certain period to attract more investors up front. Still, with a wide array of options, investors need to know what's available and which of the new Bitcoin exchange-traded funds (ETFs) they should buy, if any.
Here's what investors need to know.
Meet the new class of Bitcoin ETFs
The 11 Bitcoin ETFs come from a range of familiar names in both the traditional finance industry and the crypto industry. The blend of asset managers makes for a very interesting group.
The table below details the ETFs, their expense ratios, and their introductory fee waivers.
| Name | Expense Ratio | Fee Waiver |
|---|---|---|
| Bitwise Bitcoin ETF (NYSEMKT:BITB) | 0.20% | 0% for first six months for up to $1 billion in assets |
| ARK 21Shares Bitcoin ETF (ARKB -1.61%) | 0.21% | 0% for first 6 months for up to $1 billion in assets |
| Fidelity Wise Origin Bitcoin Fund (NYSEMKT:FBTC) | 0.25% | 0% through July 31, 2024 |
| Valkyrie Bitcoin Fund (BRRR -1.47%) | 0.25% | 0% for first three months |
| iShares Bitcoin Trust (NASDAQ:IBIT) | 0.25% | 0.12% for first 12 months for up to $5 billion in assets |
| VanEck Bitcoin Trust (NYSEMKT:HODL) | 0.25% | None |
| Franklin Bitcoin ETF (NYSEMKT: EZBC) | 0.29% | None |
| Wisdomtree Bitcoin Trust (BTCW -1.48%) | 0.30% | 0% for first six months for up to $1 billion in assets |
| Invesco Galaxy Bitcoin ETF (BTCO) | 0.39% | 0% for first six months for up to $5 billion in assets |
| Hashdex Bitcoin ETF (DEFI -0.22%) | 0.90% | None |
| Grayscale Bitcoin Trust (GBTC -1.49%) | 1.5% | None |
Table source: Author. Data source: Company websites.
The last two entries in the table above have been around for a long time. The Hashdex Bitcoin ETF is converting from a Bitcoin futures ETF to a spot Bitcoin ETF. The Grayscale Bitcoin Trust is converting from a closed-end trust that owned Bitcoin tokens to a spot Bitcoin ETF. They get the advantage of keeping all their current assets under management, which allows them to maintain higher fees than the new entrants vying for new funds.
Among the new entrants, there have already been big moves to reduce their expense ratios and waive fees. The Fidelity Wise Origin Bitcoin Fund initially filed with the SEC saying it'll charge 0.39% of assets under management. It's since been revised down to 0.25% with a fee waiver through July 2024. Valkyrie and ARK lowered their ETF fees from 0.80% to 0.25% and 0.21%, respectively, and offered generous waivers for early investors. There could still be a lot of movement as issuers jockey for position.
Which Bitcoin ETF should you buy, if any?
All of the above ETFs will function in effectively the same way. A few minor details may differ between them, but the overall mechanism of how they operate is identical. As such, a fund's expense ratio will be one of the biggest factors in deciding which fund is best for you.
That might make the Bitwise and ARK 21Shares ETFs most appealing with their 0.20% and 0.21% expense ratios, which are also waived for the first six months.
But investors shouldn't count out Fidelity or Blackrock's (BLK 0.69%) iShares. Both are massive investment managers who know how to attract assets to their funds. They have been very competitive with their fees on traditional ETFs. In the long run, they could end up offering better rates than smaller competitors. Since the current difference in rates between those funds and the market leaders is already quite small, it might make sense for investors who are planning to hold their Bitcoin ETFs for a long time to simply buy one of those funds today.
But owning a Bitcoin ETF won't be for everyone.
Image source: Getty Images.
The biggest use of Bitcoin ETFs for individual investors will be in retirement accounts like IRAs. Investing directly in Bitcoin inside an IRA requires opening an expensive self-directed IRA and then opening an account at a cryptocurrency exchange for that IRA. It's far less expensive for someone who wants to buy Bitcoin in their retirement account to buy one of the newly issued ETFs.
For investors who simply want to buy Bitcoin in a taxable account, they may be better off buying the cryptocurrency directly from an exchange.
That said, it'll take some time for that strategy to pay off. Coinbase (COIN 5.68%), the largest cryptocurrency exchange in the U.S., charges up to 0.6% on orders on its platform. As such, investors may have to hold their Bitcoin for about three years to break even against the fees charged by the lowest-fee ETFs. While institutional investors managing funds for the ETF trusts will also have to pay to buy and sell Bitcoin, they get big discounts for bringing so much volume.
Additionally, there's a certain level of technical proficiency required to buy and hold Bitcoin securely. There's also a lot of convenience in being able to hold your Bitcoin exposure in the same account as the rest of your securities investments. That quality alone may be worth the fees for some investors.
Overall, the new Bitcoin ETFs offer a low-cost and convenient way for many investors interested in Bitcoin to gain exposure to the crypto asset.
