Why Spot Bitcoin ETFs Are Likely to Finally Start Trading on Thursday - Ep. 592
Jan 9, 2024
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James Seyffart and Eric Balchunas from Bloomberg Intelligence dive into the imminent approval of spot Bitcoin ETFs and the competitive landscape surrounding them. They discuss the implications of recent SEC filings and the potential for simultaneous launches, likening the situation to a high-stakes horse race. The conversation shifts to Wall Street's unexpected embrace of Bitcoin, particularly JP Morgan's involvement. With fierce competition leading to fee wars, they analyze how all these dynamics will shape the future of Bitcoin investment and the industry as a whole.
Reduced fees for spot Bitcoin ETFs are expected to drive down costs for investors and potentially lower fees across the entire industry.
Some issuers are offering temporary fee waivers and incentives to attract investors, but the base fee is still a critical factor for investors.
In-kind transactions, where Bitcoin is exchanged directly for shares in the trust, are the most efficient way of operating ETFs and offer additional benefits compared to cash transactions.
Deep dives
Fees slashed in ETF price war
Several issuers have significantly reduced their fees for spot Bitcoin ETFs, with fees ranging from 0% to 90 basis points. BlackRock and iShares lead the way with a long-term fee of 30 basis points. The fee cuts are expected to drive down costs for investors and potentially lower fees across the entire industry.
Temporary fee waivers and incentives
Some issuers are offering temporary fee waivers and incentives to attract investors. Arc and Bitwise are offering a fee waiver for six months or up to $1 billion in assets. Other issuers, such as BlackRock, Fidelity, and iShares, have also implemented temporary fee reductions. While the fee waivers may provide a short-term marketing advantage, the base fee is still a critical factor for investors.
Concerns over pricing and risks
While the reduced fees are beneficial for investors, concerns have arisen over how issuers will make money with such low fees. There are also concerns that issuers may engage in other riskier practices, such as securities lending, to generate revenue. However, issuers in the ETF space are subject to regulatory oversight and must disclose any such practices in their offering documents.
Grayscale's high fees and potential impact
Grayscale's fees of 1.5% remain significantly higher compared to other issuers. While the market may see a mass exodus from Grayscale due to the high fees, it is unclear how investors will respond. The industry-wide trend toward lower fees may put pressure on Grayscale to reconsider its fee structure in order to remain competitive.
Efficiency of in-kind transactions in the Bitcoin trust
The podcast episode discusses the efficiency of in-kind transactions in the Bitcoin trust. The speaker explains that in-kind transactions, where Bitcoin is exchanged directly for shares in the trust, are the most efficient way of operating ETFs. This process allows authorized participants (APs) to transfer Bitcoin into the trust without triggering a taxable event, making it more advantageous for certain entities like DCG. However, the speaker also acknowledges that the cash process will still work effectively, but in-kind transactions offer additional benefits.
Potential impact of fees and competition on GBTC investors
The podcast explores the potential impact of the 1.5% fee and competition on GBTC investors. The speaker anticipates that many investors might leave GBTC due to the high fee, especially when considering other low-fee options available in the market. Additionally, the speaker suggests that Grayscale might launch a more cost-effective ETF in the future to cater to cost-conscious investors, potentially leaving GBTC with higher fees. However, the speaker also recognizes that existing relationships and close ties with certain issuers could influence the investment decisions of some investors.
It’s set to be a historic week in crypto, with the SEC widely expected to finally approve a spot Bitcoin ETF, although it’s not a 100% certainty. Two Bloomberg analysts who have followed all the developments closely since the beginning, James Seyffart and Eric Balchunas, join Unchained to discuss the final filings, the likely schedule, and whether all the applications are likely be approved on the same day. Then they dive into the real action: the cutthroat wars that have already begun, why Grayscale might be keeping its fees on the Grayscale Bitcoin Trust so high, and who the likely winners in what has traditionally been a “winner take most” category will be.
