Not all spot bitcoin exchange-traded funds (ETFs) are created equal, even if they are all tracking the price of the exact same asset.
On the surface, the 11 spot bitcoin ETFs, which were approved for trading by the U.S. Securities and Exchange Commission (SEC) on Jan. 10, may look largely the same. But there are subtle differences among the various offerings, from fees and other costs to custodians and liquidity, that may suit different types of investors.
Unchained spoke to industry experts across the ETF and investing industry to break down the distinctions and help find the best funds by investor type.
This article is for informational purposes only. Participants should be aware of the risks associated with investing in cryptocurrency, including market volatility and regulatory changes. Nothing contained herein is intended as financial or investing advice, and due diligence and research are advised before participating, since investments in financial assets including cryptocurrency are speculative, illiquid, and involve a high risk of loss.
1. Buy and ‘Hodl’ Investors
Most investors looking to choose between the various spot bitcoin ETFs will likely follow a buy and hold investment strategy — also known as “hodling” in crypto parlance. This is a passive investment strategy that refers to buying an investment and holding it for a long time regardless of the market environment.
This type of investor will want to make sure they find an ETF sponsor and custodian they are comfortable with, said Brian Spinelli, co-chief investment officer at wealth advisory firm Halbert Hargrove, which oversees around $2.7 billion in assets. This could mean picking a sponsor whose products they are already familiar with, he noted.
“Something like the BlackRock product or the Fidelity product as you see those accumulate more inflows and more assets that in itself makes it more attractive to investors because bigger products tend to look safer [and] they tend to have more liquidity,” said Roxanna Islam, head of sector and industry research at VettaFi, a data and analytics-driven ETF platform.
All three experts interviewed by Unchained agreed that fees are an important differentiator for this investor type because they’re charged annually and that will eat into gains. To attract investors to their offerings, sponsors have gotten into a fee war by lowering their rates and introducing fee waivers for an initial period of time. However, Islam recommends long-term investors look beyond those waivers since they won’t necessarily last that long.
“There’s quite a few products in that low 20 basis point range,” Islam said of the groups’ long-term, post-waiver fees. “That’s going to be a big differentiator.”
Our pick for the budget-conscious “hodler”
The Franklin Bitcoin ETF (EZBC) is the perfect mix of a recognized industry name — it’s one of the largest asset managers in the world with over $1.5 trillion in assets under management — while also offering the cheapest fees of the bunch at 0.19%. Custody of the assets is done via crypto exchange Coinbase.
2. First-Time Crypto Investors
(David Clarke, Unsplash)
First-time crypto investors are going to want to follow a similar selection process as buy and hold investors, but before making any choices, experts recommend analyzing the asset and understanding how it might fit within their portfolio or investment plan.
“The overarching question for investors is: Do they want to invest in Bitcoin to begin with?” said Bryan Armour, director of passive investment strategies for North America at investment research firm Morningstar. “Because it’s extremely volatile … it has had massive drawdowns. Four times over the past five years, [there have been] drawdowns of 45% or more.”
It makes sense for investors to look at a bigger name sponsor if they are nervous about an emerging asset because it provides a greater sense of security, said VettaFi’s Islam. With 11 ETFs approved, there’s always a risk that some smaller ETFs fail to attract assets and become too expensive to maintain and eventually shut down, Armour said.
“Most ETFs have already brought in pretty substantial assets,” he added, highlighting that accumulating $50 million in assets within the first weeks of launching is still considered a “smashing success.” WisdomTree’s Bitcoin Fund (BTCW) is the only ETF out of the approved ETFs which are actively trading to have under $50 million in assets under management.
Our pick for the first-time crypto investor
BlackRock is the largest asset manager in the world and its iShares Bitcoin Trust (IBIT) has already amassed over $3.0 billion in assets.
It charges 0.25% following an initial waiver period when the fee is 0.12% for the first 12 months of trading or until $5 billion in fund assets is reached.
BlackRock’s assets are custodied by Coinbase.
3. Institutional Investors
When it came to selecting ETFs to in turn offer to its clients, institutional player Halbert Hargrove focused on sponsors and custodians with a strong track record of dealing with the asset class, according to Spinelli. These players should be able to use their experience from trading the asset to their advantage compared to newer entrants.
“We anchored to the lower cost providers, the ones that were crypto native and had a strong custodian behind them,” Spinelli said. Even though Grayscale stands out as a crypto native institution, as it played a significant role in pushing for the approval of spot bitcoin ETFs in the US, many in the industry are wrestling with its high fees of 1.50%, he noted.
Our pick for institutional investors
The Bitwise Bitcoin ETF (BITB) is managed by Bitwise, a crypto asset manager which has overseen a range of crypto-related funds since 2017, including several ETFs.
Its assets are custodied via Coinbase and it offers one of the lowest annual fees of all the ETFs at 0.20%.
Some investors may want to invest in ETFs as a way to support the crypto ecosystem. And some ETF sponsors have more cred here than others. Some players are contributing a percentage of profits from the ETF back to the ecosystem such as VanEck and Bitwise — two sponsors who have operated digital asset linked funds for years. ETF sponsors such as Galaxy Digital and Fidelity have also invested in building and providing digital asset infrastructure tools and services.
Morningstar’s Armour noted that BlackRock is one provider that has flip-flopped on the issue of crypto, having previously criticized it before changing its tune. He also pointed out that crypto native Grayscale, which operated a closed-end fund before converting to an ETF, previously wouldn’t allow redemptions even when its closed-end fund traded at a significant discount. The investment firm is now charging a high fee of 1.50%, which he notes as another example of Grayscale not looking out for investors.
“It’s holding some of their investors hostage that don’t want to realize capital gains by switching into different ETFs,” Armour said.
Our pick for Bitcoiners
Dyed-in-the-wool crypto supporters should check out the VanEck Bitcoin Trust (HODL). VanEck’s X account has picked up the crypto lingo, tweeting, “gm,” (crypto parlance for “good morning”), posting orange heart emojis (for the Bitcoin logo’s color), and calling the person in charge of the account the “intern” (another crypto inside joke). The company has pledged to contribute 5% of its profits from the fund to bitcoin developers, its social media platform strikes the same tone as the crypto industry’s biggest names, and its ticker symbol is based on what might be the oldest Bitcoin memes: (HODL).
It’s not all fun and games, though; VanEck is also a trusted player in the ETF industry and already manages a range of digital asset-linked ETFs. It is the only provider to custody its assets via crypto exchange Gemini and its fee is a reasonable 0.25%.
5. Blockchain Believers
(Cookie the Pom/Unsplash)
Tech-savvy types who believe that cutting-edge technology is the future and who hang on investor Cathie Wood’s every word may have already been investing in Bitcoin through an ARK ETF that had an allocation in GBTC as far back as 2015. Even if not, they’ll surely want in now. To the potential investor who’s nervous about the risk of investing in spot Bitcoin ETFs, the ad for ARKB responds: “But what if the bigger risk is missing it?”
Their pitch appears to be working. As of press time, ARKB had amassed the third-highest amount in assets under management (excluding GBTC, which had a years-long head start), placing it behind BlackRock and Fidelity, much bigger players.
Our pick for Blockchain Believers
The ARK/21 Shares Bitcoin ETF (ARKB) is managed by Ark Invest and 21 Shares. VettaFi’s Islam highlights that Ark Invest is an active player in the crypto community having produced compelling research on the industry as well as on other emerging areas within the tech sector. Its assets are custodied via Coinbase and it offers one of the lowest annual fees at 0.21%.
6. Short-Term Investors and Traders
(Oskar Kadaksoo, Unsplash)
Traders are a unique case. They will want to place more emphasis on liquidity rather than fees, Armour said, because liquidity costs can add up.
Bid-ask spread, which is the difference between the highest price a buyer will offer and the lowest price a seller will accept, can be a good measure of liquidity, Armour said. Fund flows are a good proxy for bid-ask spread, he added. Traders can look at an ETF’s daily volume to understand whether the product is suited to handle large orders, Armour said.
It remains unclear what the tax implications are if a trader sells one bitcoin ETF to realize losses, then uses those proceeds to buy another bitcoin ETF on the same day, Spinelli noted. For stocks this would be considered a violation of the wash-sale rule but the rule is not typically enforced for ETFs.
“The tax side of it is one that I would be careful with at this point until we see how it actually plays out,” Spinelli said.
Our pick for short-term investors and traders
This group should check out the Fidelity Wise Origin Bitcoin Fund (FBTC), which has a bid-ask spread that is just a penny wide, which Armour describes as almost impossible to compete with. And unlike other types of investors, traders might also consider the initial fee waivers if they’re planning to switch in and out of ETFs. Fidelity is waiving its fees completely for the first six months, before settling in at a reasonable 0.25%.
BlackRock’s iShares Bitcoin Trust (IBIT) also has a bid-ask spread of around one cent, but its fee waiver is slightly less generous, with a charge of 0.12% for the first 12 months of trading or first $5 billion in fund assets, whichever comes first.
Grayscale’s Bitcoin Trust ETF (GBTC) has the highest amount of daily total volume at $14.7 billion, as well as $20.3 billion in assets under management, but of course it comes with those high fees.