Bitcoin ETFs are finally here in a landmark moment for the crypto industry.
Offerings from BlackRock Inc., Invesco Ltd., Ark Investment Management LLC, Fidelity Investments and a handful other firms launched last week. But unlike most ETFs, which differ in terms of the composition of their underlying holdings, all the new spot Bitcoin ETFs aim to track the price of the largest cryptocurrency by holding it. That means deciding which one to purchase can get confusing since the differences between funds are slim.
“I think assets will continue to flow into the space, but a lot of financial advisors are going to want to see these products out in the wild before allocating to one of them,” said Nate Geraci, president of The ETF Store, an advisory firm.
Here’s what you should consider:
Fees
The easiest way to differentiate between funds is looking at costs.
Right now, the most expensive product is the Grayscale Bitcoin Trust (GBTC), which converted from a closed-end fund into an ETF. That product currently has an expense ratio of 1.50%, or 150 basis points, which is essentially $15 in annual fees for every $1,000 you invest.
This compares to just 20 basis points for the Bitwise Bitcoin ETF (BITB). But complicating matters is that many issuers, in a bid for more customers, are offering “fee waivers” for a certain amount of time or until the fund reaches a specific asset threshold.
Bitwise Asset Management Inc., WisdomTree Inc. and Ark, for instance, all have zero fees for the first six months, up to a certain asset threshold. Meanwhile, BlackRock’s iShares Bitcoin Trust (IBIT) has the longest fee waiver at 12 months, during which it will charge 12 basis points for the first $5 billion in assets, and then 25 basis points thereafter.
Fee structure, however, is more important for long-term investors, than short-term traders, explained Geraci. The latter may may be willing to pay up for certain technical advantages.
Technicals
How well a fund operates can be just as important as how much it costs.
For ETFs, it’s all about how well the product tracks the price of an underlying index, or asset in this case. Some active managers behind one fund might be better at that than others. So if the price of an ETF is higher than the value of its holdings, buyers are essentially paying a premium for access.
Currently, the new spot ETFs are doing a good job tracking the underlying price of Bitcoin, said James Seyffart, an ETF analyst at Bloomberg Intelligence. But it’s worth keeping an eye on.
Another technical to watch is the funds’ liquidity, or how easy it is to convert shares into cash. Typically, the more trading volume a fund has, the more liquid it is. This is especially important for short-term traders, whose bets can be affected by how quickly and efficiently they can get their money into and out of positions.
Right now, Grayscale’s ETF has the most liquidity, Seyffart said. But its high fee means investors have to pay up for it.