ETF Fee War Gets Under Way

Providers are slashing their fees, and even waiving them altogether for the opening months.

Who will attract the most billions?

The new ETFs will be big business—very big business—and institutions are now in an all-out race to compete for the biggest slice of the pie.

Since all bitcoin spot ETFs will be much the same under the hood, there is little to differentiate them for investors. The fee charged by asset managers is one of the only ways these institutions have to vie for potentially many billions of dollars of customers' money.

Only So Low You Can Go

A few weeks ago, applicants started updating their filings with key information, including fees. Ark started out with a 0.8% fee: Surprisingly expensive but, it was assumed, this included costs for custodying the BTC. Given that Grayscale's management fee for GBTC was 2%, this didn't seem outlandish.

However, the dozen or so institutions looking to launch BTC ETFs are clearly expecting enormous interest, and the more money they can lock in, the better. Recent days have seen a flurry of updates, as applicants lower their fees to compete for the billions they believe are on the way.

Ark has dropped its fee from that initial 0.8% to 0.25%. Moreover, it will charge no fees at all for the first 6 months, or until the fund reaches $1 billion volume.

BlackRock's fee will be 0.3%, and 0.2% in the first 12 months or until $5 billion volume is reached. Galaxy has taken similar approach, with 0.59% but no fees for the first 6 months, or up to the $5 billion mark.

Bitwise currently comes in at the most competitive, at a 0.24% fee, followed by VanEck at 0.25%.

Summary of ETF features/fees (Bloomberg)

Grayscale, surprisingly, has only dropped its fee to 1.5%, but there may be reasons they're not worried about this.

Hidden Risks

Caitlin Long asks a pertinent question: How are issuers making money, when the fees will not be high enough to cover costs? The answer, she suggests, may not fill investors with confidence. In fact, raises questions that were recently asked when FTX imploded, having "borrowed" and invested most of its customers' capital.

It's likely that these are only introductory offers, and the fees will be increased at some point in the future, possibly after the first year. But by that stage, the money will be in. Rather than go through the hassle, costs, and tax headaches of selling and reinvesting in a cheaper ETF, customers will likely just eat the higher fees. This is almost a certainty if the rising price of bitcoin means that selling would incur a significant capital gain.

The huge capital gains tax bill may be the reason GBTC is holding its fee at a monstrously uncompetitive 1.5%. Additionally, with 620,000 BTC under management already, they won't be worried about anyone catching up with them soon.


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