Bitcoin ETF battles escalate as issuers including BlackRock and Cathie Wood’s ARK set fees and offer waivers

If the SEC moves forward with spot Bitcoin ETFs, which provide investors exposure to the current price of Bitcoin without having to hold the volatile cryptocurrency, it will kick off a race between major players like BlackRock and Fidelity that are hoping to plant a flag in a market potentially worth billions.

Besides factors like name recognition and trust, the fees charged by issuers to investors are one of the clearest ways to attract early investors. Last week, two issuers—Fidelity and Mike Novogratz’s Galaxy/Invesco ETF—released the first indications of what pricing would look like. Fidelity set its fee at 0.39%, while Galaxy put its fee at 0.59%, also announcing it would also waive fees for the first six months of operation and $5 billion in assets held.

Filings on Monday escalated the arms race. The crypto-native fund manager Bitwise squeaked in with the lowest fee, 0.24%, while the ETF and mutual fund manager VanEck set the second-lowest overall fee at 0.25% while also announcing last week it would donate 5% of its Bitcoin ETF profits to the group of developers, known as Bitcoin Core, who maintain the blockchain. Several other issuers came close, with Franklin Templeton setting its fee at 0.29% and BlackRock’s iShares ETF announcing a 0.3% fee.

Others, including Bitwise and BlackRock, aim to sweeten the pot of early entrants by following Galaxy’s model and waiving fees for a set period and for the amount invested at the beginning of the process. In a further attempt to compete with its more traditional competitors, Bitwise said it would waive fees for the first six months or $1 billion invested. Close on its heels, BlackRock set its waiver period at 12 months or $5 billion invested.

BlackRock announced it would waive fees for the first 12 months or $5 billion invested. The 21Shares Bitcoin ETF, released in partnership with Cathie Wood’s ARK Invest, set a waiver period of six months or $1 billion, with a fee of 0.25% after.

I have been talking for months about how fees will be driven down by these ETFs and how it will be good for end-investors. But honestly even i’m surprised at how low things are right now pic.twitter.com/rDYRXlyPfm

— James Seyffart (@JSeyff) January 8, 2024

Grayscale, which paved the way for SEC approval of Bitcoin ETFs through its landmark court case against the agency decided last year, set a less competitive rate of 1.5%—still lower than its current fee of 2% for its Bitcoin trust. “Hard to imagine [an] advisor (where the big money is) picking a 1.5% ETF when others [are] sub 40pbs,” said Bloomberg senior ETF analyst Eric Balchunas on Twitter.

Grayscale may have a different advantage over competitors, however. Unlike other issuers, which are creating new offerings, Grayscale is “uplisting” its existing Bitcoin trust, which has long been one of the most popular investment vehicles in the digital asset space. As Fortune previously reported, there is still a possibility that this process means Grayscale’s Bitcoin ETF is the first out of the gate. Even so, the SEC seems set on having coordinated launches to avoid a situation like ProShares’ Bitcoin futures ETF, which launched in 2021 and has captured over 90% market share.

$2 billion

For now, the date to watch is Jan. 10, the deadline for the SEC to decide on the next ETF application in line—ARK 21Shares. Bloomberg reported that issuers have been given until Monday morning to submit the last revisions to their applications, with the SEC set to vote on the filings midweek.

Many in the crypto industry are hoping Bitcoin ETFs will finally encourage traditional investors, from wealth managers to everyday traders, to enter the market. In a Twitter Spaces last week, the head of digital assets research for VanEck said that he heard that BlackRock has $2 billion of capital lined up from existing Bitcoin holders who want to put their funds into spot Bitcoin ETFs.

Rather than buying Bitcoin on exchanges like Coinbase, or self-custodying the asset through hardware wallets, Bitcoin ETFs would allow investors to hold the cryptocurrency through their brokerage accounts for a small fee. The process would not be immune from the risks of the crypto industry. Coinbase, for example, is still set to be the Bitcoin custodian for the vast majority of the issuers—an irony given its ongoing lawsuit against the SEC.

Even with optimism that the agency is set to approve spot Bitcoin ETFs, there is still a possibility that the commissioners and Chair Gary Gensler will delay or reject the applications. On Saturday, Balchunas tweeted that he estimates a 5% chance of rejection, which would likely spur additional court cases. “You gotta leave a little window open for these things,” he wrote.