going to see more uptake of bitcoin and maybe a revisiting of crypto overall .”
Of course , it ’ s also simple to buy crypto directly , at least if you ’ re an individual investor . Yet it ’ s been notoriously difficult for financial advisors and many other intermediaries . So it ’ s to their benefit that spot ETFs have arrived : By using an ETF to account for more — or all — of their clients ’ cryptocurrency allocation , advisors can more easily account for those assets while managing portfolios .
For the cryptocurrency industry , the products are also an important step toward normalizing the holding and trading of digital assets , Schwenk says .
“ It signals that there ’ s some movement towards greater acceptance and legitimacy . The whole regulatory regime remains a challenge , still , but this is definitely a step in the right direction instead of the industry continuing to hit a brick wall where nothing new can happen .”
How To Differentiate
All 11 of the new spot bitcoin ETFs hold the same asset — bitcoin tokens . They all behave very similarly , and there ’ s not a lot to distinguish them when it comes to management . Advisors hunting crypto funds for clients will be sifting through only a handful of differentiators : the expense ratios , the brands , the managers and the fund prices .
As far as their expense ratios , the new ETFs range from a low of 0.2 % for the Bitwise Bitcoin ETF ( BITB ) to a high of 1.5 % for the Grayscale Bitcoin Trust ETF ( GBTC ).
When it comes to brand choice , Schwenk thinks investors will gravitate to established names like BlackRock and its iShares Bitcoin Trust ETF ( IBIT ) or Fidelity and its Wise Origin Bitcoin Fund ETF ( FBTC ). Both come with 0.25 % expense ratios .
“ You should also look at the liquidity of the ETF , how often is it traded , and whether it is trading at discount to NAV , at premium , or at par ,” Schwenk says . ( Full disclosure : His firm acts as price provider for BlackRock ’ s fund , providing input information for the investment valuation .)
Other familiar asset management brands have entered the fray as well with their own products : the Ark 21Shares Bitcoin ETF ( ARKB ), the VanEck Bitcoin Trust ( HODL ), the WisdomTree Bitcoin Fund ( BTCW ), the Invesco Galaxy Bitcoin ETF ( BTCO ), the Valkyrie Bitcoin Fund ( BRRR ), the Hashdex Bitcoin Futures ETF ( DEFI ) and the Franklin Bitcoin ETF ( EZBC ). But not every fund will survive in the long term , Schwenk says .
“ We don ’ t need 11 of these . We ’ ve already seen a fight over fees , and we ’ ve already seen a fight over brand and reputation . I can ’ t see a long-term future where all 11 of these will have material AUM , so I suspect that we ’ ll see some consolidation .” tail market , but the fact that they ’ re in a better wrapper and listed on exchanges — and coming from reputable , established firms — will give some institutional clients more comfort with them ,” says Schwenk . “ We do run into institutional clients who have used cryptocurrency futures as their primary way to express an opinion because of the discount to net asset value on many digital currency products .”
Because they trade in real time , ETFs should be able to more successfully track a cryptocurrency ’ s net asset value than private crypto funds have ; the ETFs ’ prices will also move independently of the coins ’ net asset value and may at times even trade at premiums or discounts .
There ’ s also a question about whether digital asset investors should concentrate their holdings in bitcoin alone . Unlike many other prominent tokens , such as ethereum , solana and cardano , bitcoin ’ s blockchain isn ’ t used as the infrastructure for technological development . Its value comes purely from the scarcity embedded into its programming , and the speculative appetite of crypto investors .
“ You ’ re locked into bitcoin as your only choice if you want to invest via an ETF right now , and that might be OK for a lot of people who think about bitcoin alone as diversification in their portfolio ,” Schwenk says . However , you ’ re not diversified within the crypto space itself , which could spell trouble if any problem with bitcoin itself arises . “ It could be the technology , could be an ongoing reputational problem , it could be an investment thesis problem where people struggle to see where bitcoin cash flows come from and what justifies its price .”
The Bad
Even if the long-awaited emergence of spot bitcoin ETFs is good news for many asset managers and investors , there are a few caveats when you ’ re thinking of investing in cryptocurrencies through an exchange-traded fund . For one thing , ETF investors miss out on several advantages of owning tokens directly , such as the ability to stake ( pledge assets for rewards ) and other income-generating strategies , as well as participation in an ongoing technology project . ETF investors can ’ t take tokens offline and keep them in a secure cold storage ; the funds will always be held by the asset manager .
Like any other ETF trading in a single stock or commodity , bitcoin ETFs by themselves aren ’ t likely to be a major part of anybody ’ s personal wealth management portfolio . Instead , they ’ ll probably be used as more of a trading tool for highly active investors . Bigger investors , such as institutions , will likely look at these funds for signals of digital coins ’ price performance .
More , Better Products To Come ? Another disadvantage , of course , is The landscape is going to keep changing . Before the spot bitcoin ETF arrived , that ETFs come with fees . Owning bitcoin tokens directly can be fee-less . So it investors had to work with crypto futures may be difficult for fiduciary advisors to funds . And the new products will have justify holding their client ’ s bitcoin allocation in products laden with charges the ethereum ETFs are on the horizon in the
to make room for even newer ones . Spot
client wouldn ’ t otherwise be paying if the near future , and those products will likely be followed by funds tracking cryp- cryptocurrency had been bought directly . These new bitcoin ETFs “ are probably tocurrency indexes with many different going to have broader success with the re- Continued on page 59
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