The Securities and Exchange Commission on Wednesday approved the launch of the first spot
Bitcoin
exchange-traded funds.
SEC Chair Gary Gensler said the approval didn’t equate to an endorsement of Bitcoin, which he said was “a speculative, volatile asset.”
Still, Bitcoin believers say the new funds will bring tens of billions of dollars into digital assets, as financial advisors and other institutional investors for the first time get access to the largest crypto inside a familiar wrapper. For retail investors, the new ETFs could make buying Bitcoin easier, cheaper, and safer—in some ways.
As the ETFs launch, here’s what investors need to know.
When Will Bitcoin ETFs Be Available?
Approving the ETFs to come to market was a two-step process. First, the SEC authorized exchanges like the New York Stock Exchange and Nasdaq to list the ETFs’ shares. Soon after, the SEC approved the prospectuses submitted by each issuer. With those sign-offs in place, most if not all of the funds could start trading on Thursday.
What Are the Costs of the Bitcoin ETFs?
With around a dozen issuers seeking to launch spot Bitcoin ETFs at the same time, investors always knew the fee competition would be fierce. But the Bitcoin ETF race has exceeded expectations.
The lowest fee appearing in a fund prospectus so far comes from Bitwise Asset Management, which says it will charge a 0.2% annual expense ratio for its fund. A fund sponsored by ARK Invest and 21Shares will have a 0.21% fee, while VanEck,
BlackRock
and Fidelity come in at 0.25%.
In addition, some issuers including Bitwise, ARK/21Shares, and Invesco plan to waive their fees completely for six months for the first $1 billion to $5 billion in assets under management.
The most expensive fund for now appears to be the
Grayscale Bitcoin Trust,
which is already trading but plans to convert into an ETF. Right now, the fund, which has an expense ratio of 2%, trades like a closed-end trust with a price that deviates from that of its assets. Grayscale in a filing said that when the $27 billion fund converts, it plans to charge a 1.5% annual fee. For traders moving into and out of Bitcoin rapidly, Grayscale’s fund might still be a good option, since its high asset level will likely make it more liquid and with tighter bid-ask spreads out of the gate.
All of the funds could change their fees before or soon after launch, and some of the issuers have already reduced their fees in filings even before their debut.
What Are the Advantages of a Bitcoin ETF Over Holding Actual Bitcoin?
The main ones are cost and convenience.
Small investors on many trading platforms buying Bitcoin sometimes have to pay fees and spreads that exceed 1% of their purchase. Since many stock platforms including
Robinhood Markets
and Fidelity have zero commission trades, buying a Bitcoin ETF can be much cheaper.
In addition, using an ETF is more convenient for many investors. Rather than open a separate account on
Coinbase
to specifically buy Bitcoin, an investor can keep his or her Bitcoin holdings in the same account as other holdings. They don’t have to worry about losing passwords or fraud that in the crypto world has often resulted in the permanent loss of investments.
The ETFs can likely be held in retirement accounts for investors worried about capital-gains taxes. Of course, any capital losses in retirement accounts won’t help their tax bills either.
The issues with holding Bitcoin in separate accounts have been serious enough to scare away many institutional investors and financial advisors. Now the fund companies are betting that the creation of Bitcoin ETFs will bring in billions of dollars in new capital.
Write to Joe Light at [email protected]
Read the full article here
