Fresh off a pivotal win in court, Grayscale Investments LLC is gearing up for another challenge: the relentless fee competition in the $7.5 trillion US exchange-traded industry.
A recent ruling overturned the Securities and Exchange Commission’s decision to prevent Grayscale from converting its $17 billion Bitcointrust into a physically backed ETF. This move could potentially attract a new wave of investors. However, the product currently has a 2% fee.
In comparison, the average fee across US-listed ETFs is 0.54%, and for crypto exchange-traded products globally, it’s 1.48%, as per data.
The crypto industry is abuzz with the possibility of a fee war, especially with the introduction of spot bitcoin ETFs. Roundhill Investments, in a recent filing, disclosed that its Ether Strategy ETF would have a management fee of 0.19%.
This fee is significantly lower than what Volatility Shares intends to charge for its Ether Strategy ETF. Such proposed fees might undergo changes before the products receive approval.
The management fees are a part of the expense ratio, which represents the percentage of the fund’s assets used to cover various operational costs. Bloomberg Intelligence analysts, Eric Balchunas and James Seyffart, pointed out the competitive fee introduced by Roundhill, indicating the onset of a fee war even before the product launch.
The exact expense ratios for the proposed spot bitcoin ETFs under SEC review remain undisclosed. However, Matt Hougan, CIO of Bitwise, suggested that the expense ratios of futures-based ETFs might provide a hint. For instance, the ProShares Bitcoin Strategy ETF (BITO) and the Valkyrie Bitcoin Strategy ETF (BTF) both have an expense ratio of 0.95%. In contrast, VanEck’s bitcoin futures fund (XBTF) is priced more affordably with an expense ratio of 0.66%.
Ric Edelman, founder of the Digital Assets Council of Financial Professionals, anticipates that spot bitcoin ETFs will have expense ratios ranging between 0.5% and 1.0%. Nate Geraci, president of The ETF Store, speculated that spot bitcoin ETF issuers might aim to undercut Roundhill’s 0.19% fee, leading to intense fee competition in the market.
Dave Nadig of VettaFi opined that a spot bitcoin ETF, primarily serving as an access vehicle, would prioritize volume over expense ratio.
If the SEC approves only one spot bitcoin ETF for launch, the expense ratio might not be a significant factor. However, if multiple products launch simultaneously, both volume and expense ratio will play crucial roles in determining their success.