By Telis Demos
"You can check out any time you like, but you can never leave" might be an apt analogy to illustrate what is going on with what is set to be the largest, newly-minted bitcoin exchange-traded fund.
With a series of openings expected Thursday, those who want to invest directly in the cryptocurrency in the form of a U.S. spot ETF will suddenly have many options. But before this big bang, there was really just one direct vehicle in the U.S. market: Grayscale Bitcoin Trust, which uses the ticker GBTC.
That helped GBTC to grow to an enormous size, nearly $29 billion, even before the Securities and Exchange Commission finally approved its "up-listing" from an over-the-counter stock into a listed ETF, in which shares can be readily created or redeemed -- enabling it once and for all to close the big gap at which it has usually traded to the value of its underlying bitcoin. At that size, it would be the second-largest commodity ETF in the U.S. market, behind SPDR Gold Shares, according to ETF.com data.
As the biggest game in town for a long time, GBTC could charge a healthy 2% fee. But even before the new bitcoin ETFs were approved, the mere prospect of them launched an intense price war. Some providers have already lowered their proposed fees. Some will have promotional rates or waived fees for a period or up to a certain size.
Even the nonpromotional fees are relatively low. Several, including BlackRock's iShares Bitcoin Trust, have filed for fees under 0.3%. The average commodity ETF has an expense ratio of 0.42%, according to VettaFi, a provider of ETF analytics.
GBTC is slashing its fee, too. But only to 1.5%.
Is Grayscale trying to put itself out of business? Hardly. While the ETF market is hypercompetitive, with many investors focused on fees, they aren't the sole consideration. GBTC already having tens of billions in assets puts it in a unique position.
Most notably, those who own GBTC in taxable accounts and are considering switching to a cheaper ETF will have to weigh those savings versus the possible capital-gains tax hit of selling GBTC. And those bills could be hefty: If you had bought GBTC a year ago, back when it was trading at a huge discount to bitcoin, you would be sitting on gains of over 300%.
There are also different audiences for ETFs. For financial advisers, like the ones served by the vast distribution and marketing networks of BlackRock or Fidelity Investments, the fee might be a huge factor. But for an institution planning on large trades, things like liquidity and bid-offer spreads might be key. And being the biggest bitcoin ETF can drive advantages on those measures.
Take the well-established gold ETF market. SPDR Gold Shares is the largest gold ETF. But its sponsor fee of 0.4% is above that of the second largest, iShares Gold Trust, at 0.25%. Other gold ETFs are even lower.
The lesson is that if bitcoin ETFs are the vast market force proponents hope for, the battle might be long and complicated. ETFs in other markets come in many flavors: There are ETFs that hold less of an underlying asset per share to trade at a lower price, increasing their appeal to some investors. ETFs can also come in leveraged or short varieties.
Whether the SEC will approve those versions of spot bitcoin ETFs remains to be seen, of course. Chair Gary Gensler pointedly didn't endorse bitcoin, saying in a statement that "investors should remain cautious about the myriad risks associated with bitcoin and products whose value is tied to crypto." Legally, though, many future approvals might have to follow, with the SEC having arguably backed itself into a corner with its initial batch of approvals.
So for those already exhausted by the saga of spot bitcoin ETFs, be prepared for a lot more to come.
Write to Telis Demos at Telis.Demos@wsj.com
(END) Dow Jones Newswires
January 11, 2024 08:00 ET (13:00 GMT)
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