Yesterday's approval of 11 Bitcoin exchange-traded funds by the Securities and Exchange Commission allowed brokers to begin selling these funds the next morning – but the costs vary.
Investing $10,000 in the most expensive option would result in fees of $150 over the course of a year, but the cheapest ones would cost nothing for six months and then $20 per year.
The new ETFs, which can be bought and sold on some of the country's largest exchanges, allow retail investors and institutions to own shares in funds that track the spot price of Bitcoin.
More than $3.5 billion of the new funds changed hands on the first day, with Grayscale, BlackRock and Fidelity leading the way, according to Bloomberg data.
As they went on sale, Bitcoin price reached almost $48,000 before falling back to $46,300 in the afternoon.
The fee investors pay to fund managers can vary – so which of the 11 new ETFs is the cheapest? As of January 11, Bitwise Bitcoin ETF had the lowest annual fee of 0.2 percent, while Grayscale Bitcoin Trust had a fee of 1.5 percent.
The Bitwise Bitcoin ETF (BITB) had the lowest fee of 0.20 percent as of January 11, while Grayscale Bitcoin Trust (GBTC) had a fee of 1.50 percent
The Nasdaq board in Times Square shows scenes from the opening bell ringing as Bitcoin spot ETFs launch on the Nasdaq on January 11th
Bitcoin ETFs save those interested in gaining exposure to Bitcoin from having to purchase the cryptocurrency and personally store it in their own digital wallet. This saves them significant commissions and fees, but the purchase is not free.
Although many funds have initially offered to waive fees either for a certain period of time or until they reach a certain size, eventually all will take a portion of their investors' money in return for management.
Is a Bitcoin ETF different from buying Bitcoin directly?
Yes. A spot Bitcoin ETF allows investors to participate in the price of Bitcoin without the complications and risks of owning Bitcoin directly. This includes setting up crypto wallets and accounts on crypto exchanges, some of which have poor cyber security records and are vulnerable to hacks.
SOURCE: Portal
This fee, also called the “expense ratio,” is between 0.2 and 1.5 percent for the new ETFs.
For example, an expense ratio of 0.3 percent means that the asset manager earns $3 annually for every $1,000 invested.
Due to the huge hype and the fact that all funds were approved at the same time, there is fierce competition among them.
Competition is so fierce that before approval, issuers have begun optimizing their fees, undercutting each other and offering increasingly attractive incentives to attract investors.
Seven of the 11 ETF issuers offered fee waivers, which eliminate or reduce fees for a certain period of time or until the fund reaches a certain size – in most cases either $1 billion or $5 billion.
Ark 21Shares, Valkyrie and Invesco Galaxy suggested in their initial filings that they would charge higher fees, but later reduced them.
Similarly, Bitwise reduced its initial fee from 0.24 percent to 0.20 percent, making it the smallest company in the group.
Grayscale stands out from the group with a higher fee of around 1.5 percent. His fund differs from the others in that it has existed as a trust for a decade and only converted to an ETF on Thursday.
The fees were reduced from 2 percent to 1.5 percent. The GBTC fund had nearly $30 billion in assets under management before SEC approval, meaning it didn't rely as much on low fees to build its size.
Grayscale Bitcoin Trust (GBTC) charged the highest fee in the comparison at 1.50 percent
“We believe the product’s management fee reflects its value as investors and the broader capital markets will benefit from GBTC’s large asset base, strong liquidity and 10-year track record,” Grayscale CFO Edward McGee said in a statement.
Its CEO Michael Sonnenshein told CNBC on Thursday that his experience with cryptocurrencies justifies the higher costs.
“We are a crypto specialist.” We have weathered all kinds of speed fluctuations and advances in the crypto ecosystem. “For many of these asset managers and issuers, this is the first time they are dealing with the complexities that come with managing these types of products,” Sonnenshein said.
Most fees for Bitcoin funds are between 0.2 and 0.3 percent, higher than most S&P 500 tracking funds, which can be less than 0.1 percent.
Still, they are below those of the most popular commodity funds, many of which charge around 0.5 percent.