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Bitwise Leads in Low-Fee Bitcoin ETFs, Grayscale Banks on Scale

Bitwise Leads in Low-Fee Bitcoin ETFs, Grayscale Banks on Scale

Markets

HANZO

Jan 9, 2024 at 08:56 am

As the Securities and Exchange Commission (SEC) prepares to greenlight one or more U.S. spot Bitcoin exchange-traded funds (ETFs), the spotlight intensifies on the fees set by potential issuers. The fee structure, a key determinant for investors, has emerged as a critical factor in the market positioning of the 13 proposed ETFs awaiting SEC approval or rejection.

Lower fees, calculated as a percentage of the fund's assets, offer investors more favorable returns, making it a pivotal aspect of consideration. Bitwise, a cryptocurrency native fund manager, leads the pack by setting the lowest fee at 0.24%, with a noteworthy feature of a fee-free initial 6-month period. Close competitors, including Ark and 21Shares, follow closely with a planned fee of 0.25%, while VanEck and Franklin are not far behind at 0.25% and 0.29%, respectively.

The unexpected move by BlackRock, the world's largest asset manager, to set its fee at 0.30% surprised industry experts. Despite its size and reputation, BlackRock strategically opted for a lower fee, indicating a commitment to maintaining competitiveness without overpricing.

Damn, the fee for BlackRock’s Bitcoin ETF will be 0.30% as per their just filed S-1. This is much cheaper than I predicted. Life just got a LOT tougher for everyone else. The ETF Terrordome is no joke. pic.twitter.com/RZrfO8x61s
— Eric Balchunas (@EricBalchunas) January 8, 2024

Fidelity positioned itself with a fee of 0.39%, while Invesco and Galaxy set theirs at 0.59%. Valkyrie and Hashdex opted for higher fees at 0.80% and 0.90%, respectively. Similar to Bitwise, most issuers plan to introduce reduced fees for an initial period after their launch, adding a temporary incentive for potential investors.

In contrast, Grayscale, planning to convert its Grayscale Bitcoin Trust (GBTC) into an ETF, positioned its fee at the higher end of the spectrum, reaching 1.5%. While a reduction from the trust's management fee of 2%, doubts linger among industry observers about its competitiveness against other applicants.

Eric Balchunas, a senior analyst at Bloomberg Intelligence, remarked on the challenges Grayscale might face, stating that it's difficult to imagine advisors favoring a 1.5% ETF. Another ETF expert, Nate Geraci, echoed this sentiment, asserting that Grayscale's fee "simply isn't going to cut it," particularly when considering that the average fee on ETFs in 2022 was 0.37%, according to Morningstar research.

*Highly* disappointing fee from Grayscale…

1.5% simply isn’t going to cut it in ETF Terrordome.

If fee sticks, they’re clearly looking to just milk existing asset base (which will slowly erode).

Not sure what thought process was if they’re serious about competing longer-term.
— Nate Geraci (@NateGeraci) January 8, 2024

Despite concerns about fees, Grayscale holds a notable advantage in a critical ETF metric: size. With assets under management exceeding $27 billion, Grayscale outshines its competitors, all of whom are starting from scratch. This substantial size positions Grayscale with a pivotal advantage in the competitive landscape of the ETF space.