Representations of the cryptocurrency Bitcoin are placed on a PC motherboard in this illustration taken on June 16, 2023.
Dado Rovik | Reuters
Cryptocurrency investors are waiting for the Securities and Exchange Commission to approve a large batch of spot bitcoin orders, likely on Wednesday
With the spot Bitcoin ETF now looking very real, attention has turned to details about how it will trade, how much it will cost, how much Bitcoin will increase due to demand being pulled forward, and premium or discount ratings. .
The fees are competitive and you will get more
With nearly a dozen ETFs vying for attention, Bitcoin buyers will be highly price-sensitive, and issuers are already engaged in a modest price war. For example, Cathie Wood's ARK Invest, which is teaming up with 21Shares to launch a Bitcoin ETF, initially announced a 0.8% fee but on Monday announced no fees for the first six months.
Other issuers are also cutting prices significantly, with several (Bitwise, ARK, Invesco) offering 0% fees for the first six months, while Grayscale charges 1.5%.
Bitcoin exchange traded fees
Bitwise (GBTC) 0.0% (after first six months: 0.24%)
ARK Invest/21Shares (ARKB): 0.0% (after the 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%)
Van Eck Bitcoin Trust (HODL) 0.25%
Franklin Templeton Digital Holdings Trust 0.29%
Fidelity Wise Origin Bitcoin Trust (FBTC) 0.39%
Wisdom Tree Bitcoin Trust (BTCW) 0.50%
Valkyrie Bitcoin Fund (BTF) 0.80%
Grayscale Bitcoin Trust (GBTC) 1.50%
Invesco's Galaxy Bitcoin ETF has set its expense ratio at 0.0% for the first six months and the first $5 billion in assets, rising to 0.59% after that.
How will Bitcoin spot trading compare to Bitcoin and Bitcoin futures?
One of the key questions is how well the Bitcoin ETF tracks Bitcoin and Bitcoin futures contracts.
Simeon Hyman, global investment strategist at ProShares who runs the largest bitcoin futures ETF, the ProShares Bitcoin Strategy ETF (BITO) that launched in October 2021, noted that bitcoin futures ETFs have tracked bitcoin “fairly well.” “. But he also told me that “the Bitcoin spot market is still immature. The futures market is regulated and mature. We'll have to wait and see how well they track each other.”
Another issue is whether Bitcoin ETFs will trade at a premium or discount to their net asset value. In this case, NAV is the value of Bitcoin owned by the ETF. Some are concerned that the creation and redemption process agreed upon to create spot Bitcoin ETFs could result in the Bitcoin ETF trading at a price higher than its net asset value.
“Some of these ETFs will trade at a premium, and then as investors start to understand the nuances, then we will filter out the nuances and the little pips,” said Reggie Brown, global co-head of ETF trading and sales at GTS. Bloomberg.
Most market participants believe that any premiums will be small.
Som Seif runs the Purpose Bitcoin ETF, the first bitcoin ETF to launch in Canada in 2021.
“Our product trades very efficiently, with very low spreads,” Saif told me. “You should not see any impact on trading efficiency. There will be a large number of players, and the underlying assets are very liquid.”
“The underlying market is very liquid,” agreed Matt Hogan, CIO at Bitwise Asset Management, one of the applicants for a bitcoin ETF, agreeing. “We have been in the market buying and selling bitcoin for years. The main issue is who gets the liquidity and who wins the expenses.”
How much money will these ETFs attract?
It is not clear how much new money will be withdrawn once the Bitcoin ETF is traded.
However, two ETF-related events have helped drive interest in Bitcoin in the past two years:
1) Beginning with Bitcoin Futures ETFs (BITO), starting in October 2021, which helped take Bitcoin from around $10,000 in October of that year to over $40,000 by January 2022. Largest BITO Futures ETF For Bitcoin it is the ProShares bitcoin Strategy ETF (BITO). ), recently surpassed $2 billion in assets under management, according to ProShares.
2) Blackrock's application for a Bitcoin ETF on June 16, 2023 helped move Bitcoin from around $25,000 to $30,000 in a matter of days.
Brown estimates that pooled ETFs can have fairly large inflows. “After thirty days, it could be worth between $2 billion and $3 billion,” he told Bloomberg, estimating that it could attract $10 billion to $20 billion in new assets this year.
However, given that Bitcoin's current market cap is close to $900 billion, these are not huge inflows. Canada's largest Bitcoin ETF, the Bitcoin ETF, has about $400 million in assets after more than two years.
What then?
The next issue, Hogan says, is whether major institutions and financial advisors will allow their investors to trade Bitcoin on their platforms.
“Just because a Bitcoin ETF is launching, it doesn't mean JPMorgan is going to come in,” Hogan said.
After that, Hogan said the next big events will be the Bitcoin halving in April, followed by any interest rate cuts from the Federal Reserve.
“High interest rates are bad for non-yielding assets like bitcoin or gold,” Lee said. “If you get 5% cash, it's tough competition.”
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