Price war for spot bitcoin ETF heats up ahead of key SEC ruling

A fee war has broken out among the asset managers hoping to launch spot bitcoin exchange traded funds in the US, even though the US regulator has not yet indicated whether it will allow the products to be sold.

BlackRock, the world’s largest fund manager, said in a regulatory filing on Monday that it would charge customers just 0.2 per cent of the net asset value of its fund for the first year or until its ETF hits $5 billion (NZ$8.01b) in assets before rising to 0.3 per cent

Rival applicant Ark Investment Management, which had previously indicated it would charge 0.80 per cent of its bitcoin holdings, offered to waive fees for the first six months, or until its ETF’s assets reach $1b. Thereafter its fee will be set at 0.25 per cent.

Invesco likewise will waive fees for six months or the fund’s first $5b before settling at 0.59 per cent.

The latest moves are the final touches to regulatory filings ahead of an expected decision this week from the Securities and Exchange Commission on whether to permit stock market funds that invest directly in bitcoin. If approved, funds could be launched in a matter of days.

Bitcoin last month soared to a 20-month high of $44,000, and this week has climbed more than 5 per cent to about $45,200 as investor anticipation builds ahead of the SEC potentially giving the green light to several applicants.

Because the products are similar — they are all designed to hold bitcoin — fees and to a lesser extent firm branding will be a key part of how the applicants distinguish themselves in a crowded market.

“This is a classic price war. How do you prove that your ETF is any better than anybody else’s? The only way you can compete is on price,” said James Angel, faculty affiliate at Georgetown McDonough’s Psaros Center to Financial Markets and Policy.

For a decade the SEC has resisted applications for a spot bitcoin ETF, arguing that bitcoin prices are set on unregulated exchanges and thus it cannot give adequate investor protections. But pressure has been growing on the regulator since it lost a court ruling last summer on its reasons for blocking an ETF application by asset management firm Grayscale.

Grayscale itself on Monday said it would drop its fee from 2 per cent to 1.5 per cent. The remaining list of applicants, including WisdomTree, Valkyrie and Fidelity are all offering fee structures comfortably below one per cent.

“Grayscale is in a difficult position because they were the very first mover in the field, and it was the only way to get in. Now they face competition,” Angel added.

All of the providers are hoping to benefit from a rush into the asset class akin to the $1b that flooded into ProShares when it offered the first-ever bitcoin futures ETF in late 2021. That fund hit the $1b threshold in just the first two days of trading, and now holds about $1.8b in net assets.

“With a bitcoin spot ETF, we’re opening the doors to Wall Street,” said Jad Comair, chief executive of Melanion Capital.

Written by: Scott Chipolina in London and Will Schmitt in New York

© Financial Times