The wave of fee reductions is the only way for ETFs, and Bitcoin is no exception.
Written by: Peng SUN, Foresight News
In the past two days, at the request of the U.S. Securities and Exchange Commission (SEC), issuers such as BlackRock, ARK 21Shares, VanEck, Fidelity, Grayscale, and Franklin Templeton have successively submitted the final revised ETF application documents. What is particularly eye-catching is that issuers are scrambling to lower ETF fees, and some institutions have even proposed to adopt exemption policies such as 0 fee fee for the first six months.
At the same time, US SEC Chairman Gary Gensler also tweeted twice to remind people of the risks associated with investing in crypto assets. In terms of market conditions, since 0:00 on January 9, Bitcoin has successively exceeded US$45,000, US$46,000, and US$47,000. Currently, the price of Bitcoin has remained around $46,842.
Various signs such as the wave of fee reductions by institutions, the yin and yang reminder from the SEC Chairman, and the rise in Bitcoin prices indicate that the adoption of a compliant Bitcoin spot ETF seems to be imminent. In the anxious moment of the long and short tug of war, the ETF fee war (Fees War) is staggering. So, what is this rate, and what is the purpose of the institutional roll rate? How does the Bitcoin spot ETF fee level compare with traditional ETFs? Behind the low fees, for investors, do low fees really mean making money?
1. What is Sponsor Fee?
In Bitcoin spot ETFs, the sponsor fee (Sponsor Fee) first appeared in the public eye on November 20, 2023, when ARK Invest added a sponsor fee (Sponsor Fee) rate to its Bitcoin spot ETF application document. The initial rate is 0.8%.
Sponsor Fee is related to the sponsor of the fund (Sponsor). The sponsor is responsible for the management and control of the fund and the marketing of the fund, while the sponsor fee (Sponsor Fee) is used to pay for the costs of managing the ETF, including custody costs, management salaries, securities buying and selling costs, legal expenses, etc.
2. Rate war is the general trend
From January 8th to 9th, 11 institutional issuers that applied for Bitcoin spot ETFs continued to reduce their fee rates in the final revised documents, triggering a “tide of fee reductions” in the Bitcoin ETF market. As of January 10, the latest rates for each institution are as follows (arranged from high to low):
*Grayscale: 1.5%
- Hashdex：0.9%
- Valkyrie：0.49%
- Franklin Templeton: 0.29%
- Fidelity: 0.25%
- VanEck：0.25%
- BlackRock: 0.2% for the first 12 months, raised to 0.3% after 12 months or AUM to $5 billion
*Galaxy Invesco: 0 for the first 6 months, raised to 0.39% after 6 months or AUM to $5 billion
- Wisdomtree: 0 for the first 6 months, raised to 0.3% after 6 months or AUM to $1 billion
- Ark/21Shares: 0 for the first 6 months, raised to 0.25% after 6 months or AUM to $1 billion
- Bitwise: 0 for the first 6 months, raised to 0.2% after 6 months or AUM reaches $1 billion
Photo credit: James Seyffart
Among 11 institutions, 8 have rates below 0.4% after exemption, while the average rate for all institutions after exemption is 0.478%.
In fact, since 1997, the reduction of global ETF fees (active and passive) has been an irreversible trend. For example, the ETF fees of Vanguard, Schwab, BlackRock’s iShares and other well-known fee kings in the United States are even as low as about 0.03%. In addition, according to the Investment Company Institute (ICI), one of the major associations of regulated funds in the United States, the fees for various ETFs such as stock ETFs, bond ETFs, and mutual funds have mostly dropped by more than 50% in the past 26 years, which is lower than 0.1%. All. According to research data from Huobi Research Institute in 2021, the average cost (including management fees) of US ETFs is approximately 0.44%. From this point of view, U.S. issuers are at an average level in terms of Bitcoin spot ETF fee reductions, which is due to the U.S. ETF environment.
But if you compare it with the rest of the world, the United States is significantly lower. For example, the Canadian Bitcoin ETF fee rate represented by BTCC is 1%, while the average fee rate of the 10 largest Bitcoin ETP/ETNs in Europe is 1.047%.
Considering that the users and capital volume in Canada and Europe cannot match those of the United States, and under the same circumstances, American users prefer ETFs and tend to low-cost ETF products, it is not difficult to understand that U.S. institutional issuers are paying more attention to Bitcoin ETF fees. rate involution. After all, the United States is the world’s largest ETF market. Under homogeneous competition, fee reduction is the only way for ETFs, and Bitcoin is no exception.
3. With the wave of fee reductions, is it cheaper to make money?
Fee reduction is in order to attract more users, funds and market share, but is low fee necessarily cheap?
“How do you make money by managing funds when the fee is lower than the cost?” This is a question raised by Caitlin Long, founder and CEO of Custodia Bank, regarding the wave of fee reductions for Bitcoin spot ETFs.
Ben Johnson, director of global ETFs at Morningstar, also said, “There is no free lunch in the world. If you get something for free, then you are likely to subsidize it by paying for other things.” Typically, zero-fee ETFs make money by lending shares to customers, selling other products, or offering lower interest rates on cash funds. But will Bitcoin spot ETFs face such problems? In what ways will the publisher earn back that revenue? unknown.
The low fees also caused concern for Gabor Gurbacs, strategic advisor to Tether and VanEck: "I will be scared when I make little or no money. Issuers will look for other ways to make money (securities lending, trading, etc.), and I personally Like charging higher fees up front and providing clear and sustainable incentives. If possible, dig into the total cost of ownership. But that’s not the case with the ETF fee war. People like to see the numbers are low.”
Of course, all worries pale in comparison before the adoption of ETFs. After all, we are witnessing history. Every ETF passed in the United States has brought about a trillion-level blue ocean market. The market value of Bitcoin is now US$800 billion, returning to a trillion-dollar market value, providing more users with diversified investment options other than US bonds. There is nothing like this. Even more exciting.
References:
Guosheng Securities: “What will the Bitcoin spot ETF bring?” 》, January 2, 2024;
Gaurav Roy, Bitcoin Spot Vs Futures ETFs: What’s the Difference?, Jan 4, 2024.
Deng Xingcheng, Li Yan, Ge Hui: “Global ETF Development Trends and Future Directions”, Shenzhen Stock Exchange, 2009;
Charles Yu, Sizing the Market for a Bitcoin ETF, Galaxy Digital, Oct. 24, 2023.
Keris Lahiff, Why zero-fee ETFs are not risk free, March 9, 2019.
