How To Chose Between The Bitcoin ETF’s

Bitcoin spot ETFs are finally here. The SEC approved 10 ETFs at the same time. An 11th will convert from futures to spot soon. Bitcoin sold off at the event. It was highly anticipated, even the initial sell-off. I’ve argued (see Bitcoin ETF Approval: What Does It Mean For Crypto Markets) any sell-off would likely be short-lived because the market would be moving on the halving event that’s coming in ~90 days and will restrict the supply brought to market by the Bitcoin miners. The available ETFs are Grayscale Bitcoin Trust (BTC) ETF (GBTC), Bitwise Bitcoin ETF (BITB), iShares Bitcoin Trust ETF (IBIT), Valkyrie Bitcoin Fund Beneficial Interest (BRRR), ARK 21Shares Bitcoin ETF Beneficial Interest (ARKB), Invesco Galaxy Bitcoin ETF (BTCO), Vaneck Bitcoin Trust ETF (HODL), WisdomTree Bitcoin Trust (BTCW), Fidelity Wise Origin Bitcoin Fund Beneficial Interest (FBTC) and Franklin Bitcoin ETF (EZBC).

Some people argue Bitcoin spot ETFs make no difference in the Bitcoin price or investment adoption, but I’m afraid I have to disagree with that notion. This allows (institutional) investors to gain easier exposure to Bitcoin through traditional investment channels, like stock exchanges. Not every institution is supposed to hold futures-based products. An ETF holding futures is technically not futures, but it introduces further headaches.

Now, more investors can buy Bitcoin ETFs through standard brokerage accounts, which can be more accessible and more familiar than setting up a cryptocurrency wallet and trading on a crypto exchange. Multiple crypto exchanges have gone down, and these are hard to trust. However, setting up self-custody systems is not what professional money managers are looking to do. It’s not what regulators are looking for, either.

Companies like MicroStrategy Incorporated (MSTR) and a closed-end fund like Grayscale Bitcoin Trust (BTC) ETF (GBTC) enjoyed tremendous success because they allowed institutions and parties constrained to TradFi access to Bitcoin. Both products sometimes traded at a premium to the Bitcoin they owned. MicroStrategy, as a corporation, isn’t an ideal vehicle to hold an investment product, and the Grayscale Trust charged very high fees (now reduced to 1.5%).

Many Bitcoin enthusiasts rave about the advantages of self-custody. It can certainly be the best option and saves a lot in fees. However, most investors don’t like to worry about the technicalities and security concerns associated with storing and securing Bitcoin. They don’t even want to know what a private key is, and the stories of people losing access to their Bitcoin or getting hacked are a dime a dozen. It can also introduce additional compliance loads that offset potential gains saved through self-custody.

I’m not a tax adviser and know little about U.S. tax customs. However, handling taxation and accounting for cryptocurrencies isn’t easy. I understand that tax-advantaged accounts, like 401Ks, do not always let one hold every kind of investment either. A Bitcoin spot ETF could simplify the process, and accountants will have an easier time dealing with it. In the future, dealing with cryptocurrency may become much more standardized or straightforward, but we’re not there yet. This is a step forward.

With so many new ETF products coming to market, choosing will be hard. I wanted to make an overview of the various ETFs and their important characteristics. Luckily the Financial Times, Alphaville, had already gathered a lot of facts and put together a spreadsheet. I’ve added data below that was missing and added Digital Asset Custodian columns and premium to NAV columns. I’ve left off 1st day volume, APs, and liquidity providers. to make the table more readable, but these are available in the Alphaville spreadsheet.

Click to enlarge

Grayscale is the largest fund right now because it converted an existing closed-end fund that was, for a long time, the only game in town. It contained billions in Bitcoin already. It stands out with its 1.5% expense ratio, while the 2nd highest expense ratio is charged by Invesco at 0.6%.

The others are competitive with each other, and early on (in an attempt to gather assets and top the league tables), many are waiving or lowering fees. The Bitwise, Valkyrie, Ark, Invesco, WisdomTree, and Fidelity funds are all waiving fees for the first few months. Sometimes, with a cap. Most of them charge fees far below what I expected, between 0.2%-0.3%. I think this is great, and the egregious fee levels will no longer be as much of a barrier to institutions. Taking advantage of the waived fees is attractive for the next few months.

Depending on how much I plan to trade the product, I’d prioritize higher volume funds or lower fees. Higher volumes tend to lead to tighter bid-ask spreads. For an indication, I’ve included the premium to net asset value these ETFs currently trading at in the table above. This could vary by day and even intraday, though, so check on it before you make an investment if it is important to your investing style.

In essence, you slightly overpay for what you get because of the work that’s being done in the plumbing of ETFs by authorized participants, custodians, and market makers/liquidity providers. The premium is likely the lowest if there’s more volume and less volatility. For short-term traders, this can matter a great deal. For long-term holders, it is likely not at the top of the list of things to worry about.

Then, I think VanEck deserves an honorable mention for best ticker.

In addition, Bitwise and VanEck have said they would donate 5-10% of profits to the Bitcoin Core developers or open-source development organizations.

Conclusion

In summary, the arrival of Bitcoin spot ETFs is a milestone in the evolution of cryptocurrency. Their introduction undoubtedly simplifies and broadens access to Bitcoin for a broader range of investors, both institutional. Among the plethora of new ETF offerings, a few particularly stand out. These are my personal favorites that I would consider first:

Firstly, the Fidelity Wise Origin Bitcoin Fund Beneficial Interest (FBTC) is a top pick for its competitive fee structure, and apparently, it even trades at a slight discount to net asset value. Its low initial and ongoing fees, combined with the digital asset custody being done by Fidelity Digital, make this really stand out. Custody should be very solid in any case but with this emergent asset class, I like the idea of having the assets at different custodians.

Second, the Vaneck Bitcoin Trust ETF (HODL) looks good, not only for its ticker symbol, but also because it trades well (low premium), has another custodian and the fee level is attractive. I also like the fact they’re supporting Bitcoin development. It’s not a selling point that I’m immune to.

Third, iShares Bitcoin Trust ETF (IBIT), managed by the largest player in ETF, stands out for its competitive long-term fee structure even though it does not discount as aggressively as some others short-term. It trades well which I expect to continue.