Key Points
- The Bitwise Bitcoin ETF (BITB) has the lowest expense ratio of all the funds poised to launch Thursday, at 0.20%.
- Bitwise and other funds have waivers that forego all or part of the fees for a period of time.
- Crypto-focused asset managers like Grayscale have the highest fees.
The recent approval of bitcoin exchange-traded funds (ETFs) by the U.S. Securities and Exchange Commission (SEC) has ignited a potential fee war among these funds. Notably, the Bitwise Bitcoin ETF (BITB) leads the pack with the lowest expense ratio at 0.20%, followed closely by the Ark 21Shares Bitcoin ETF (ARKB) at 0.21%, and the iShares Bitcoin Trust (IBIT) at 0.25%.
The Bitwise fund stands out further as it includes a temporary fee waiver that eliminates the fee entirely for the first $1 billion of assets for six months. Similar waivers are observed in other proposed funds, providing early adopters of bitcoin ETFs with minimal or zero management costs initially.
While the fees for bitcoin funds are higher compared to many broad stock index funds, such as the SPDR S&P 500 ETF Trust (SPY) with an expense ratio of less than 0.10%, they align with or even undercut fees of major commodity funds. For instance, SPDR Gold Shares (GLD) and the United States Oil Fund (USO) charge 0.40% and 0.60%, respectively.
The fee landscape indicates a burgeoning battle to lower fees in the crypto funds sector. Initial filings by issuers like Ark-21Shares, Valkyrie, Invesco-Galaxy, and others suggested higher fees, but subsequent filings showcased significant reductions. Even Bitwise revised its proposed fee from 0.24% to 0.20%, already the lowest among the initial batch.
Bryan Armour, Director of Passive Strategies Research for North America at Morningstar, noted that the competition for lower fees in the crypto fund space exceeded expectations. The willingness of asset managers to operate at lower fees underscores the intensifying competition and growing demand for cryptocurrency investment products.
Much cheaper than options before
The newly approved bitcoin exchange-traded funds (ETFs) are set to bring a significant change in fees compared to existing options in the market. For example, the recently launched BITO has an expense ratio of 0.95%, and the Grayscale Bitcoin Trust (GBTC), which is transitioning to an ETF, charged 2% previously. Grayscale is reducing its fee on GBTC to 1.5%, representing the highest fee among the funds slated to launch.
The Bitwise Bitcoin ETF (BITB) leads the pack with the lowest expense ratio of 0.20%, introducing a potential fee war among these funds. The fees for bitcoin funds are generally higher than those for many broad stock index funds but align with or undercut fees of major commodity funds.
Grayscale’s decision to maintain a relatively high fee could be strategic, considering its substantial 10-year track record and existing size of about $29 billion. The firm might be betting that current GBTC shareholders may be hesitant to sell their shares and move to a cheaper fund, potentially incurring a tax bill that offsets the benefits of lower fees.
Other crypto-focused asset managers are also charging a relative premium, with the Hashdex Bitcoin ETF (DEFI) having the second-highest published fee at 0.94%. Valkyrie, which initially planned to charge 0.49% for its fund BRRR, reduced the fee to 0.25% just before launch and is offering a temporary fee waiver.
Grayscale CEO Michael Sonnenshein justified the higher price point, emphasizing the firm’s experience in dealing with crypto and navigating the complexities involved in running such products. He highlighted Grayscale’s role as a crypto specialist, having weathered various challenges and advancements within the crypto ecosystem over the years.
