Van Eck signals possible start of unscrupulous” Bitcoin ETF fee war

A potentially “brutal” price war for U.S.-listed Bitcoin exchange trading funds could begin as early as Monday, less than a week after the first such vehicle was launched.

Van Eck has filed with the U.S. Securities and Exchange Commission to bring its Bitcoin Strategy ETF (XBTF) to market “as quickly as possible,” signaling that it will charge a management fee of just 65 basis points.

This undercuts the 95bp charge of the ProShares Bitcoin Strategy ETF (BITO), which has amassed more than $1 billion in assets after posting its strongest ETF launch ever last week. Valkyrie Investments' Bitcoin Fund (BTF), which joined the fray on Friday, also has a fee of 95bp.

ETF Store President Nathan Geraci, a Kansas-based financial advisor, believed this will likely be just the first stage in a battle for investors' wallets.

"BITO has already gained a major advantage as a first mover. . . The attention surrounding this product is unique in the history of ETFs," argued Geraci.

"That said, at the end of the day, Bitcoin futures ETFs are commodity products. Costs matter and I expect a brutal fee war in this category. [This] is the opening salvo in a ruthless, ongoing fee competition."

Kenneth Lamont, senior fund analyst for passive strategies, said there was “definitely a first-mover advantage” for BITO, but believed that “if there is a significant difference in fees, we will see investors switch.”

"If you look at other markets, you would have seen a similar story [of fee compression] over the years. I don't think Bitcoin is immune to market pressures," Lamont added.

VanEck's fee is also significantly cheaper than the 95bp charged by the WisdomTree Bitcoin ETP (BTCW) - the lowest-cost Bitcoin exchange-traded product available in the much more developed European market, according to data from TrackInsight.

The WisdomTree fund, like most in Europe, is physically backed by Bitcoin and not in the futures market like its US counterparts. The SEC has not yet approved an application for spot price-based crypto ETFs.

The world's only cheaper Bitcoin ETF, the physically backed CI Galaxy Bitcoin ETF (BTCX), listed in Canada, costs 40bp, according to TrackInsight.

VanEck's European offering of exchange-traded crypto notes, which represent five virtual currencies including Bitcoin, cost between 1 and 1.5 percent. VanEck declined to comment for this story.

Michael Sapir, CEO of ProShares, defended BITO's fee by arguing that the fund is actively managed rather than passively, with ProShares traders "using our expertise to trade the [futures] contracts" rather than automatically at a fixed point in time before expiration.

However, Lamont was not convinced that this should be a major factor. “They call it active, but actively deciding when to roll futures between one day and the next is not like an active stock manager,” he argued.

The emerging fee war makes the dominant Grayscale Bitcoin Trust (GBTC) - a private trust that invests in the spot market - look expensive at $42 billion, with a 2 percent annual management fee.

David LaValle, global head of ETFs at Grayscale, said he would be committed to reducing the fee if Grayscale receives SEC approval to convert the trust into a spot ETF, which it filed last week, but did not suggest a reduction threatened otherwise.

"We own 3.5 percent of all Bitcoin in the world. This is the fee profile that we have always had. We feel very comfortable because we have a product in the market that has very strong liquidity and a very strong asset base," said LaValle, who argued that the cost of rolling futures contracts created by the first wave of U.S. Bitcoin ETFs would mean GBTC would generate even higher returns despite the higher total expense ratio.