As potential crypto ETF ‘fee war’ looms, what will spot bitcoin ETFs cost?
The proposed management fee of an ether futures ETF could signal a lower-than-anticipated spot bitcoin fund cost, one industry watcher says
Elnur/Shutterstock modified by Blockworks
The proposed management fee of a planned ether futures ETF could signal a crypto fund fee war is brewing, according to market observers.
But how that could impact the cost of a spot bitcoin ETF — and whether investors even care — remains to be seen, particularly as the Securities and Exchange Commission has never permitted such a product to launch.
Roundhill Investments revealed in an Aug. 4 filing that its Ether Strategy ETF would charge a management fee of 19 basis points, or 0.19%.
The 0.19% fee is nearly one-sixth the fee that Volatility Shares plans to charge for its Ether Strategy ETF, a planned fund that kicked off a slew of similar filings. These proposed fees could change between now and potential approval of the product.
Read more: SEC now ready to consider ETH futures ETFs, sources say — but what’s changed?
The management fees represent a portion of the expense ratio, or the percentage of the fund’s assets that is used to cover various expenses of running the fund.
A Volatility Shares spokesperson declined to comment. Roundhill did not return a request for comment.
Bloomberg Intelligence analysts Eric Balchunas and James Seyffart highlighted the Roundhill fee in tweets last week.
“Fee wars already starting and we [are] two months from launch,” Balchunas said. “ETF Terrordome in effect.”
How this could relate to bitcoin ETFs
The proposed spot bitcoin ETFs being reviewed by the SEC have not yet revealed their expense ratios.
Matt Hougan, chief investment officer of prospective spot bitcoin ETF issuer Bitwise, said during a webinar earlier this month that the expense ratios of futures-based ETFs could signal what spot bitcoin ETF issuers might charge.
The ProShares Bitcoin Strategy ETF (BITO) — the largest bitcoin futures ETF, and first to launch — has an expense ratio of 0.95%. So, too, does the Valkyrie Bitcoin Strategy ETF (BTF). VanEck’s bitcoin futures fund (XBTF) is cheaper, carrying an expense ratio of 0.66%.
Ric Edelman, founder of the Digital Assets Council of Financial Professionals (DACFP), said during the webinar with Hougan that he expects spot bitcoin ETFs to carry expense ratios between 0.5% and 1.0%.
But Nate Geraci, president of The ETF Store, said in an Aug. 18 tweet that issuers of spot bitcoin ETFs may look to beat Roundhill’s proposed 0.19% fee.
“Thought we could see [less than] 40 [basis points]; It might end up way lower than that,” Geraci added. “Will be brutal fee competition.”
Dave Nadig, financial futurist at VettaFi, said 0.19% would be cheap for an ETF focused on any kind of alternative asset class.
Issuers of a crypto futures product could charge more than those of spot-based products, Nadig argued, noting the roll costs associated with futures contracts.
“However, because a spot bitcoin [ETF] is going to be largely an access vehicle, I suspect volume is going to be vastly more important than expense ratio,” he told Blockworks.
Expense ratio likely won’t matter at all if the SEC greenlights one spot bitcoin ETF to launch by itself, Nadig said — a scenario opposed by Grayscale Investments and VanEck’s head of digital assets research.
But if multiple launch at once, expense ratio, as well as fund volumes — likely driven by institutions — will be more critical for the ETFs’ success, he added.
“You can imagine a scenario where there’s a known start date and various players then go and quietly nudge their largest ETF [and] crypto-interested trading partners and clients,” Nadig said. “In that case, volume will matter, but [expense ratio] might.”
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