Branding
Like with any consumer product, brand loyalty can be a deciding factor. Big names like BlackRock, Fidelity and Franklin Templeton Investments might be more familiar for mainstream investors and therefore seem safer, said Daniel Sotiroff, a senior analyst at Morningstar Inc. Others may prefer a firm that positions itself as a crypto expert like Bitwise.
The bigger firms will likely have an easier time attracting assets, since they have a more extensive network of financial advisors and clients. The size of an ETF usually isn’t that important for investors, but it could matter in this case — with so many Bitcoin ETFs on the market, there’s a chance that at least a few won’t survive.
When an ETF closes, investors still get all their money back, but a closure could trigger a taxable event at an inopportune time, Geraci said. Right now, Grayscale’s GBTC has the most assets with about $23 billion, while BlackRock’s IBIT and Fidelity’s FBTC each have about $1 billion.
Custodian
One difference among the spot ETFs is their custodian, or the platform where the actual Bitcoin used in the funds is stored. Eight of the new ETFs are using Coinbase Global Inc., while the VanEck Bitcoin Trust is using Gemini, and Fidelity is using its own digital-asset unit to safeguard the crypto for its fund.
Some argue that having so many funds dependent on Coinbase creates a dangerous concentration of risk. Although the US Securities and Exchange Commission greenlit the funds, the regulator is currently in a separate legal battle with Coinbase after accusing it of running an unregistered exchange for tokens the regulator deemed as securities. Seyffart said that he expects some ETFs will diversify their custodians over time.
To be sure, the custody services offered by Coinbase are under a separate entity from its exchange. But what a potential bankruptcy could mean for spot Bitcoin ETF customers is unclear.
“If investors want to dive deeper into the ETF due diligence process, evaluating custodians can certainly be on the checklist,” Geraci said. “But it may come down to perception more than anything.”
This article was provided by Bloomberg News.