Fee War on Bitcoin ETF Has Begun - Plus 12 Predictions

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To investors,

The bitcoin spot ETF approvals will be announced this week. The final decisions will likely come on Wednesday with trading to commence before the end of the week.

In preparation for that event, each ETF administrator must reveal what their management fee for the respective funds will be. Those numbers have started to come in this morning and there is only one way to describe what is happening — the fee war has begun.

Grayscale’s GBTC has been the goliath in the room for years. They managed tens of billions of dollars in the largest bitcoin fund in the world. That trust structure had a 2% management fee, which is more than double the average ETF fee. The argument was that bitcoin was more expensive to manage, so the fee was justified.

In reality, Grayscale had a monopoly in the US on the publicly traded bitcoin funds. They could charge whatever they wanted. This was an amazing business for them and they likely will never get the credit they deserve for the incredible work they did to educate, and onboard, so many investors to the digital currency.

Competition is coming fast and furious though.

Grayscale revealed this morning that their management fee will drop to 1.5% once they convert the trust structure to an ETF. While a 25% reduction in their management fee may sound large, this will leave Grayscale significantly higher than almost all of their competition.

Here are some of the other management fees that ETF providers have revealed, according to James Seyffart from Bloomberg:

These numbers are coming out very quickly this morning, so any changes or updates will not be included in my analysis.

Another area of “fees” is the bid/ask spread for these ETFs. According to Bloomberg’s Eric Balchunas, the expectation is that any ETF with healthy volume the spread will only be 1-2 basis points. That won’t be a big deal for almost all investors in these ETFs.

But something more interesting is happening with these fee wars on the ETF.

Van Eck advisor Gabor Gurbacs points out that it will “cost less to hold a Bitcoin ETF for a year than a single trade on Coinbase.” So the ETFs may actually create a drop in transaction fees for the crypto exchanges as well, not just the crypto-native asset management firms.

He goes on to highlight a potential downside to these low fees on the ETF applications:

“Bitcoin ETFs are coming in with pricing structures in the low double digit range and many with waivers and discounts. This clearly benefits the holders. However, it scares me when little to no money is made. Issuers will look elsewhere to make money (securities lending, trading, etc) I personally just like an upfront higher fees with clear and sustainable incentives. If possible a deep look into total cost of ownership. But that’s not how the ETF pricing battles go. People like to see low numbers.”

These are important points to keep in mind as the ETFs are approved and scaled.

Now many of you have emailed me questions about what I expect to happen with the bitcoin ETF, so here are a few simple predictions:

* The spot bitcoin ETF is approved this Wednesday and starts trading on Thursday

* The ETFs receive at least $2 billion in AUM within 48 hours

* The ETFs receive at least $5 billion in AUM in the first 30 days

* Blackrock emerges with the highest AUM outside Grayscale after the first 90 days

* The marketing spend to promote bitcoin spot ETFs is more than $100 million cumulatively

* There are at least one bitcoin spot ETF ad played in the Super Bowl

* Financial advisors around the country begin allocating 1-3% of client assets to bitcoin

* At least one sovereign wealth fund announces they bought the spot bitcoin ETF within the first 12 months

* Speculation around an ETH spot ETF will intensify by end of Q1

* Non-bitcoin ETF issuers begin allocating some of their AUM into the bitcoin spot ETF

* Bitcoin’s volatility drastically reduces in the next 3 years

* Bitcoin’s compound annual growth rate falls to ~20% within 5 years

It will be interesting to see what I get right and where I am wrong. Predicting the future is hard. Regardless of what happens, the long-term outlook of bitcoin remains a positive one.

Hope you all have a great start to your week. I’ll talk to you tomorrow.

-Anthony Pompliano

Darius Dale is the Founder & CEO of 42Macro.

In this conversation, we talk about global liquidity, Wall Street investors on bitcoin ETF, Macro Weather Model on asset prices in 2024, and more.

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