The most likely winners in all of this could be the investors themselves, although BlackRock, Fidelity, and Bitwise have the best chance of succeeding.
Cameron & Tyler Winklevoss filed to establish the Winklevoss Bitcoin Trust on July 1st, 2013. Although it was a novel product at the time, the SEC was far from prepared to authorize an exchange-traded fund (ETF) that invested in an unregulated asset in an unregulated market. Over ten years later, this week marks the realization of the Winklevoss twins' initial goal! The first bitcoin ETFs have been authorized by the SEC!
The Spot Bitcoin ETFs' Journey
The SEC didn't reject the Winklevoss Trust application until 2017, despite the fact that it was first submitted in 2013. Over the past ten years, there has been talk of the SEC's discomfort with the uncontrolled nature of cryptocurrency and the possibility of fraud. Despite this, various issuers have continued to attempt to introduce a spot bitcoin ETF to the market.
Prior to its 2015 listing for trading by ordinary investors, Grayscale introduced the Grayscale Bitcoin Trust (GBTC) in 2013 as a private trust accessible only to accredited investors. Why can one trade GBTC when other items cannot? It is traded on the over-the-counter market, where FINRA approval was necessary for trading but SEC approval is not required. Because of its closed-end trust structure, the market price of the investment may differ considerably from its underlying net asset value. Since the trust owns bitcoin, it offers exposure to the cryptocurrency in a technical sense, but the exposure is not direct or dependable due to the premium or discount to NAV.
A similar ETF obstacle prevented issuers, including Bitwise and VanEck, from launching their own bids a few years ago. When the CBOE published the first bitcoin futures contracts to trade in late 2017, things started to shift. After some time had elapsed to make sure these contracts would actually trade, focus shifted to the ETF market and the possibility that a product holding these bitcoin futures contracts would be approved by the SEC. There were already dozens of exchange-traded funds (ETFs) holding nothing but futures contracts. The introduction of bitcoin futures exchange-traded funds (ETFs) was approved by the SEC in October 2021.
The ProShares Bitcoin Strategy ETF (BITO) was launched three days ahead of the second ETF, the Valkyrie Bitcoin Strategy ETF (BTF), which has subsequently changed its name to the Valkyrie Bitcoin & Ether Strategy ETF. This presented a challenge for the ETF issuers. The first mover advantage is enormous in the ETF market, and ProShares ultimately acquired all the assets. BITO holds more than $1.8 billion of the $2.3 billion invested in bitcoin ETFs as of right present. The performance of bitcoin futures exchange-traded funds (ETFs) looks like this, which is problematic for investors in ETFs.
Bitcoin futures ETFs will almost certainly always lag behind the performance of bitcoin due to the roll expenses associated with switching to the next futures contract when the current one expires. BITO has lagged behind bitcoin by a staggering 171% to 151% margin in the past year alone. Spot bitcoin ETFs are therefore considered essential. It is advisable to invest in the actual bitcoin rather than a derivative if you plan to buy bitcoin. The SEC should have a lot of instances of these goods' successful trade in Canada and Europe to reassure it about their potential in the US market.
What's Been Modified
Before the latter half of 2023, filings for bitcoin ETFs typically followed this route:
Issuer submits a spot Bitcoin ETF application; delay
SEC takes longer than expected to decide whether to approve
SEC postpones making a decision once more.
The ETF is not approved by the SEC.
The silence was the main factor. The SEC's apprehension of fraud and manipulation remained unwavering, and their radio silence was mostly interpreted as a sign that they were unwilling to confront the issue. The most likely outcome was always a denial, even though the "delay instead of denial" strategy only produced only 5% optimism.
In the latter part of last year, that changed. In fact, the SEC started asking investors, issuers, and other interested parties for comments. Based on their responses as well as the SEC's, issuers were encouraged to file or refile for their bitcoin ETFs. This was the turning point that showed the SEC was open to a conversation rather than remaining silent. The SEC and issuers have been exchanging back and forth for the past month or two, with the issuers making several revisions to their filings essentially to answer any concerns the SEC may have had. Oversight (how will the issuers monitor and manage manipulation and fraud) and custody (where will the physical bitcoin be housed) were two of the major issues.The main reason a bitcoin ETF clearance is seen as quite likely at this stage is the discussions between the SEC and the possible bitcoin ETF issuers.
Why Was the date of January 10th so significant?
In short, this is the ARK 21Shares Bitcoin ETF (ARKB) decision deadline. One of the first parties to register for a bitcoin ETF was ARK, and the SEC has a deadline for answering to the filing. January 10th is the last day for ARKB. Since ARKB was the only filing with this deadline, there was always a chance that it would be the only one approved on Wednesday. However, I believe the SEC observed what happened with bitcoin futures ETFs, where one ETF gained an advantage and eventually took control of the market (this also happened with blockchain ETFs). Simply put, letting everyone leave is easier and more equitable.
The Index of Bitcoin ETFs and Their Prospects
It's time to examine each of the authorized bitcoin ETFs and their future prospects now that we've reached the finish line. In total, there are 11. Since they all are practically the same in that they contain bitcoin, we really need to look attentively to uncover differentiators. Cost will be a major factor, and the issuers were decreasing expenditure ratios right up until the last minute to compete, so it's obvious they understood that too.
Bitwise Bitcoin ETF Trust (BITB)
When pitted against the likes of BlackRock and Fidelity, Bitwise might not appear like a clear winner, but in my view, BITB is a true dark horse. They currently have the lowest expenditure ratio of all the companies, starting at 0.20% with the charge waiver. Bitwise specializes on cryptocurrency and manages cryptocurrency indexes as well. If an issuer bases their entire business on cryptocurrencies and bitcoin, I believe that many investors will at least give it some thought. Additionally, their most recent file has this small nugget.
Pantera reportedly committed nine figures to Bitwise, with an estimated $3.6 billion in assets. It's possible that more businesses than I believe are interested in collaborating with a crypto expert.
Expense Ratio: 0.20% (currently 0.00% with fee waiver)
Outlook: Good
ARK 21Shares Bitcoin ETF (ARKB)
Having worked with bitcoin for many years, Cathie Wood uses GBTC to expose her investments to the cryptocurrency in a number of ARK funds. According to their current position, they are worth about $80 million, and that money will probably soon transfer to ARKB. The disruptive innovation theme of ARK is undoubtedly aligned with a bitcoin ETF, and its 0.21% fee ratio is exceptionally low in this domain. ARK is in it to win it because it normally charges 0.75% for its funds, which is where I anticipated this fund to come in at. However, following 2022's dismal performance, the glitter has faded from ARK overall, so it will be fascinating to see how many investors are prepared to take a chance on the Cathie Wood sandbox.
Fidelity Wise Origin Bitcoin Trust (FBTC)
If nothing else, Fidelity will compete on size and scale. While it may not be a major participant in the ETF market just yet, the corporation has trillions of dollars in assets under management, and it will use that to provide cryptocurrency to its present clientele.
Since Fidelity is as well-known as any money manager worldwide, it should undoubtedly draw assets in a situation where some of the other issuers on our list might not have the same benefit.I anticipate that after the initial euphoria fades, FBTC will rank among the top three bitcoin ETFs because it is also priced to move.
Expense Ratio: 0.25% (currently 0.00% with fee waiver)
Outlook: Very Good
WisdomTree Bitcoin Trust (BTCW)
Although WisdomTree is presently ranked ninth in terms of total assets, it is undoubtedly a well-liked issuer in the ETF industry; yet, an ETF dedicated to bitcoin seems a little strange. Although the firm offers exchange-traded funds (ETFs) focused on cybersecurity, cloud computing, and artificial intelligence, the great majority of its assets in U.S. ETFs are now allocated to broad-based stock and bond ETFs. This is by no means a criticism of the WisdomTree ETFs; in fact, I really enjoy many of them. Simply put, I believe they're more suited for the average investor, and I doubt anyone looking to purchase bitcoin will consider WisdomTree.
Expense Ratio: 0.30% (currently 0.00% with fee waiver)
Outlook: Good
Invesco Galaxy Bitcoin ETF (BTCO)
Though Invesco is a larger issuer than WisdomTree, and I think they have a greater chance of acquiring some assets in their bitcoin ETF, I don't see anything that sets them apart from the competition. Although the first charge waiver is commendable, their subsequent 0.39% fee places them in the lower echelons of the bitcoin ETF rankings. We also understand how investors in ETFs feel about their expenses.
However, I wouldn't be shocked if Invesco performs reasonably well. There could be some spillover impact because there is significant name awareness, particularly with their suite of Nasdaq 100 and neighboring ETFs.
Expense Ratio: 0.39% (currently 0.00% with fee waiver)
Outlook: OK
Valkyrie Bitcoin ETF (BRRR)
Valkyrie has already attempted to launch a cryptocurrency exchange-traded fund (ETF) before. Despite being the second to market, their bitcoin futures ETF is the fourth largest (unless you include the 2x bitcoin futures ETF). While it makes sense that it wasn't able to overtake BITO, the bitcoin futures ETFs from VanEck and ProShares were able to surpass it in spite of their much later launches. That does not bode well for the little guy trying to take on the bigger players.
What makes us believe it can compete with the BlackRocks, Fidelitys, and ARKs of the world when their bitcoin ETFs all launch at the same time if it can't keep up with the larger issuers despite having a head start. In my opinion, Valkyrie draws moderate assets and persists for a short duration before most likely being drowned out. Furthermore, their fee is among the highest following waiver.
Expense Ratio: 0.49% (currently 0.00% with fee waiver)
Outlook: Not Good
iShares Bitcoin Trust (IBIT)
This is the clear favorite to win the competition for the bitcoin ETF. A bitcoin ETF, like WisdomTree's offering, is a little too off-brand for BlackRock, but with its size and scale advantages, it's hard to see how IBIT could fail.
Before BlackRock declared they were entering the contest, the likelihood of a bitcoin ETF being approved by the SEC appeared remote. Ultimately, one would assume that BlackRock must possess knowledge that the general public lacks if they are considering the establishment of a bitcoin ETF. They have been highly involved in this process since announcing their aspirations for a bitcoin ETF, thus they may or may not have inside knowledge. BlackRock is the only issuer with bitcoin ETF filings that the general investor is likely to be aware of, as they are the name that has been making headlines. If IBIT is to win the over asset flow competition, it must be a strong favorite.
Expense Ratio: 0.25% (currently 0.12% with fee waiver)
Outlook: Excellent
VanEck Bitcoin Trust (HODL)
Similar to Invesco and WisdomTree, VanEck is in the middle of the pack of issuers that will obtain enough assets to justify their investment but not enough to rank among the leaders. There is some possibility for name recognition because VanEck was among the first ETF issuers to attempt to launch a bitcoin ETF, but beyond that, I don't see much of a case.
Although it may have the greatest ticker of all of them, the fact that there is no cost waiver hurts its chances.
Expense Ratio: 0.25%
Outlook: OK
Franklin Bitcoin ETF (EZBC)
I'm doing everything I can to figure out how Franklin's bitcoin ETF can succeed, but I'm just not getting anywhere. The firm is more of an established asset manager and is arguably more well-known for its selection of mutual funds than its ETFs. EZBC is arguably the bitcoin ETF that investors are least aware of. It is unlikely to get any traction if investors are unaware of its existence.
Franklin released a range of country ETFs in 2017 with the goal of leading the industry in low cost, all priced at 0.09%. While a few have experienced some success, most still have assets under $100 million. Franklin's low cost strategy hasn't allowed him to succeed. Not much is buzzing. It doesn't appear to go well with the other items in their lineup. There's no refund of fees. I simply don't see this as a viable route to success.
Expense Ratio: 0.29%
Outlook: Poor
Hashdex Bitcoin ETF (DEFI)
Similar to Bitwise, Hashdex specializes on cryptocurrency, which ought to give them an edge, but that cost is unconscionable. They won't be nearly as well-known among regular investors, and there are a few solutions that are more than 0.5 percent cheaper that provide them better possibilities elsewhere.But based on existing relationships, I can see a lot of cryptocurrency purchasers choose Hashdex, so maybe it will succeed more than I anticipate.
Expense Ratio: 0.90%
Outlook: Poor
Grayscale Bitcoin Trust (GBTC)
This is the most intriguing approval for a bitcoin ETF out of all of them. GBTC is clearly transitioning from a closed-end trust, yet the trust already possesses $27 billion in assets. Comparable to starting a marathon at mile twenty.
What kind of attrition the fund will face is the key question. In the realm of exchange-traded funds, the expense ratio seems outrageous, but it makes sense to want to maintain a 1.5% expense ratio on an asset base of $27 billion (remember, this was 2% pre-conversion). As GBTC was the sole bitcoin company in the market, I also believe that a significant amount of money was invested in it. While bitcoin futures exchange-traded funds (ETFs) did not significantly impact the market, spot bitcoin ETFs could, particularly when offered by firms like Fidelity and BlackRock.
It's a matter of how long they can hang onto what they have, but I don't see GBTC drawing in much, if any, net new money. Although other funds on this list will likely acquire their assets, for the time being it will undoubtedly be the biggest source of income.
Expense Ratio: 1.50%
Outlook: Very Good
In summary
The issuers that stand to gain the most will be revealed in the near future, but the investors themselves must emerge as the real winners. Many people had anticipated that the spot bitcoin ETFs would come in at least 0.50%, however BITO still has an expense ratio of 0.95%. It's really amazing that investors may gain spot bitcoin exposure for as little as 0.20% and that they can also benefit from a short-term fee waiver.
