In this picture taken on June 16, 2023, representations of the Bitcoin cryptocurrency are placed on a PC motherboard.
Nut Ruvic | Reuters
Cryptocurrency investors are waiting for the Securities and Exchange Commission to approve a series of spot bitcoin applications, likely on Wednesday
With a spot bitcoin ETF now looking very real, attention is turning to the details of how it will trade, how much it will cost, how much of bitcoin’s rise is due to demand that has been pulled forward, and the premium or discount valuation. .
Fees are competitive and will be higher
With nearly a dozen ETFs competing for attention, bitcoin buyers will be very price sensitive, and issuers are already engaged in a bit of a price war. For example, Cathie Wood’s ARK Invest, which is partnering with 21Shares to launch a bitcoin ETF, initially announced a 0.8% fee, but on Monday disclosed no fee for the first six months.
Other issuers are also cutting prices significantly, with several (Bitwise, ARK, Invesco) offering a 0% fee for the first six months, while Grayscale charges 1.5%.
Spot bitcoin ETF fees
Bitwise (GBTC) 0.0% (after first six months: 0.24%)
ARK Invest/21Shares (ARKB): 0.0% (after first six months: 0.25%)
Invesco Galaxy Bitcoin ETF (BTCO) 0.0% (after first six months: 0.59%)
iShares Bitcoin Trust (IBIT) 0.20% (after first 12 months: 0.30%)
VanEck Bitcoin Trust (HODL) 0.25%
Franklin Templeton Digital Holdings Trust 0.29%
Fidelity Wise Origin Bitcoin Trust (FBTC) 0.39%
WisdomTree Bitcoin Trust (BTCW) 0.50%
Valkyrie Bitcoin Fund (BTF) 0.80%
Grayscale Bitcoin Trust (GBTC) 1.50%
The Invesco Galaxy Bitcoin ETF set an expense ratio of 0.0% for the first six months and the first $5 billion in assets, and then goes to 0.59%.
How will bitcoin spot trading relate to bitcoin and bitcoin futures?
One of the main questions is how well a spot bitcoin ETF will track bitcoin and bitcoin futures.
Simeon Hyman, global investment strategist at ProShares, which manages the largest bitcoin futures ETF, the ProShares Bitcoin Strategy ETF (BITO), which launched in October 2021, noted that bitcoin futures ETFs have tracked bitcoin “pretty well.” But he also told me, “The bitcoin spot market is still not mature. The futures market is regulated and mature. We’ll have to wait and see how well they track each other.”
Another question is whether Bitcoin ETFs will trade at a premium or discount to their net asset value. In this case, the NAV is the value of the Bitcoin owned by the ETF. Some fear that the creation and redemption process agreed to create spot bitcoin ETFs could lead to bitcoin ETFs trading at a premium to its NAV.
“Some of these ETFs will trade at a premium, and as investors start to understand the nuances, then we’ll filter out the nuances and the small points,” said Reggie Brown, GTS’s global director of ETF trading and sales. Bloomberg.
Most market participants believe that the potential premium will be small.
Som Seif runs the Purpose Bitcoin ETF, the first Bitcoin ETF to launch in Canada in 2021.
“Our product trades extremely efficiently, with very tight spreads,” Seif told me. “You shouldn’t see any impact on trading efficiency. There will be a wide range of players and the underlying asset is very liquid.”
Matt Hougan, CIO of Bitwise Asset Management, one of the bitcoin ETF applicants, agreed: “The underlying market is very liquid,” he told me. “We have been buying and selling bitcoins in the market for years. The main issue is who will get the liquidity and who will win in spending.”
How much money will these ETFs attract?
It’s unclear how much new money will be drawn in once the spot bitcoin ETF trades.
However, two ETF-related events have helped boost interest in Bitcoin over the past two years:
1) Bitcoin Futures ETF (BITO) began trading starting in October 2021, which helped propel bitcoin from nearly $10,000 in October of that year to over $40,000 by January 2022. The largest bitcoin futures ETF, the ProShares Bitcoin Strategy ETF (BITO ), recently surpassed $2 billion in assets under management, according to ProShares.
2) Blackrock’s June 16, 2023 Bitcoin ETF filing helped move Bitcoin from around $25,000 to $30,000 in a matter of days.
Brown estimated that the combined ETFs could see a fairly significant influx. “After thirty days, it could be $2 billion to $3 billion,” he told Bloomberg, estimating it could attract $10 billion to $20 billion in new assets this year.
Still, with Bitcoin’s current market cap approaching $900 billion, that’s not a huge influx. Canada’s spot bitcoin ETF, the Purpose Bitcoin ETF, has approximately $400 million in assets after more than two years.
What will be next?
Another question, Hougan says, is whether large institutions and financial advisors will allow their investors to trade bitcoins on their platforms.
“Just because a bitcoin ETF has been launched doesn’t mean JP Morgan is going to get into it,” Hougan said.
After that, Hougan said the next big event would be the Bitcoin halving in April, followed by any interest rate cuts by the Federal Reserve.
“Higher interest rates are bad for non-yielding assets like bitcoin or gold,” he told me. “If you get 5% on cash, that’s tough competition.”
