Competing Bitcoin ETFs Gear Up For 'Brutal Fee War'

Competing Bitcoin ETFs Gear Up For 'Brutal Fee War'

What once seemed a remote possibility, is now an accelerating reality as two U.S.-listed exchange-traded funds (ETFs) tied to Bitcoin futures debuted on Wall Street last week.

An ETF is an investment vehicle tracking the performance of an asset or group of assets. In the case of a Bitcoin futures ETF, the particular asset is Bitcoin futures contracts traded on Chicago Mercantile Exchange (CME)—currently, the only regulated trading platform in the U.S. to offer this type of a product.

ProShares Bitcoin Strategy Fund—the first U.S.-listed Bitcoin futures ETF—debuted on the New York Stock Exchange (NYSE) on Tuesday, October 19, and was followed by Valkyrie’s Bitcoin Strategy ETF launch on the Nasdaq on Friday, October 22.

While ETFs offer individual investors the benefits of diversification, protection, and liquidity without the need to hold the underlying asset, they all come with an annual management fee—an important aspect any savvy investor takes into consideration.

Both ProShares and Valkyrie funds have a fee of 95 basis points (0.95%), which means that investors pay $9.50 on every $1,000.

ProShares ETF (BITO) drew plenty of attention from investors, with the fund’s trading volume reaching nearly $1 billion on the first day. Valkyrie’s ETF (BTF) saw a much quieter launch—just shy of $80 million, according to Bloomberg.

Things are likely to turn more interesting as early as Monday as VanEck’s Bitcoin futures ETF—the third Bitcoin futures ETF approved by the Securities and Exchange Commission (SEC)—is expected to launch on the NYSE.

VanEck’s Bitcoin Strategy ETF (XBTF) has an expense ratio of 0.65%—significantly lower than what both ProShares and Valkyrie offer, which could mean that investors may prefer a cheaper product.

Bitcoin futures ETF’s ‘brutal fee war’

“At the end of the day, Bitcoin futures ETFs are commodity products. Costs matter and I expect a brutal fee war to play out in this category, Nathan Geraci, president of the ETF Store, told the Financial Times.

Geraci added that VanEcks’ XBTF launch “is the opening salvo in what will be a ruthless, ongoing fee competition.”

VanEck’s management fee is also cheaper than the 95bp charged by the WisdomTree Bitcoin ETP (BTCW)—the lowest-cost physically-backed Bitcoin exchange-traded product (ETP) in the European market.

The only cheaper Bitcoin-themed ETF in the world is CI Galaxy Bitcoin ETF (BTCX), a Canada-listed spot Bitcoin ETF which comes with an expense ratio of 0.40%, according to data from TrackInsight.

Despite higher fees and somewhat modest trading volumes on its debut, Valkyrie’s CEO Leah Wald made it clear that she prefers to focus on the long-term.

"We believe that demand is strong enough to bring two or three Bitcoin futures ETFs to roughly the same AUM given enough time, and then investors will ultimately decide which firm best fits their values and they'll eventually pull ahead of the pack," Wald told Yahoo Finance Live.

With the October 31 deadline for the SEC response fast approaching, Mike Novogratz’s Galaxy Digital could be the next in line to have its Bitcoin futures ETF application approved, however, the Galaxy Bitcoin Strategy ETF original filing didn’t specify what the management fees would be.

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