Two days ago, at the request of the U.S. Securities and Exchange Commission (SEC), BlackRock, ARK 21Shares, VanEck, Fidelity, Grayscale, Franklin Templeton and other issuers have submitted the final revised ETF application documents. In particular, issuers are scrambling to reduce ETF fees, and some institutions have even proposed exemptions such as 0 fees for the first 6 months.
At the same time, SEC Chairman Gary Gensler also tweeted twice about the risks associated with investing in crypto assets. In terms of market conditions, since 0:00 on January 9, Bitcoin has exceeded $45,000, $46,000, and $47,000. Currently, the price of Bitcoin has remained around $46,842.
Institutional fee cuts, SEC chairman's yin and yang reminders, and the rise in the price of bitcoin are all signs that a compliant bitcoin spot ETF seems to be on the verge of passing. In the anxious moment of the long-short tug-of-war, the ETF fee war is staggering. So, what is this fee rate and what is the purpose of the institutional roll fee? What is the level of Bitcoin spot ETF fee compared to traditional ETFs? Behind the low fees, is the low fee really profitable for investors?
1. What is Sponsor Fee?
In Bitcoin spot ETFs, the Sponsor Fee first appeared in the public eye on November 20, 2023, when ARK Invest added a Sponsor Fee fee to its Bitcoin spot ETF application file, initially at 0.8%.
The Sponsor Fee is related to the sponsor of the fund. The sponsor is responsible for managing and controlling the fund and is responsible for the marketing of the fund, while the sponsor fee is used to cover the expenses of managing the ETF, including custody costs, management salaries, securities buying and selling costs, legal expenses, etc.
Second, the rate war is the trend of the times
From January 8 to 9, 11 institutional issuers applying for Bitcoin spot ETFs continued to reduce fees in the final revision documents, triggering a "wave of fee reductions" in the Bitcoin ETF market. As of January 10, the latest rates for each agency are as follows (in descending order):
- Ash: 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, up to 0.3% after 12 months or AUM to $5 billion
- Galaxy Invesco: 0,6 months for the first 6 months or AUM to 0.39% after $5 billion
- Wisdomtree: 0,6 months for the first 6 months or 0.3% after AUM to $1 billion
- Ark/21Shares: 0.25% after the first 6 months or AUM to $1 billion
- Bitwise: 0,6 months for the first 6 months or 0.2% after AUM to $1 billion
图片来源:James Seyffart
Of the 11 establishments, 8 had a rate below 0.4% after the waiver, while the average rate for all agencies was 0.478% after the waiver.
In fact, since 1997, the reduction of global ETF fees (active vs. passive) has been an irreversible trend. For example, ETFs such as Vanguard, Schwab, and BlackRock's iShares are even as low as 0.03%. In addition, according to the Institute of Investment Companies (ICI), one of the main associations of regulated funds in the United States, the fees of various types of ETFs such as stock ETFs, bond ETFs, and mutual funds have mostly fallen by more than 50% in the past 26 years, and less than 0.1% abounds. According to the 2021 Huobi Research Institute research data, the average cost (including management fees) of US ETFs is about 0.44%. As a result, U.S. issuers are at an average level of fee reductions for Bitcoin spot ETFs, which is due to the U.S. ETF environment.
But if you compare it to the rest of the world, the U.S. is significantly lower. For example, the Canadian Bitcoin ETF, represented by BTCC, has a fee rate of 1%, while the average fee for the 10 largest Bitcoin ETPs/ETNs in Europe is 1.047%.
Considering that Canada and Europe cannot match the size of users and funds in the United States, and in the same situation, American users prefer ETFs and prefer low-cost ETF products, it is not difficult to understand the involution of American institutional issuers in terms of Bitcoin ETF fees. After all, the United States is the world's largest ETF market, and under the homogeneous competition, fee reduction is the only way for ETFs, and Bitcoin is no exception.
Third, the tide of fee reduction, cheap is earning?
Fee reduction in order to attract more users, capital and market share, but does low fee rate necessarily be cheaper?
"How do you make money managing funds when fees are lower than costs?" is the question raised by Caitlin Long, founder and CEO of Custodia Bank, about the wave of fee cuts for Bitcoin spot ETFs.
Ben Johnson, head of global ETFs at Morningstar, also said, "There is no such thing as a free lunch. If you get something for free, then you're likely to subsidize it by paying for something else." Typically, zero-rate ETFs make money by lending shares to customers, selling other products, or offering lower interest on cash funds. But will Bitcoin spot ETFs face such a problem, and it is unclear how issuers will earn back that part of the gains.
The low rates also raised concerns for Tether and Gabor Gurbacs, a strategic advisor at VanEck: "I get scared when I make little or no money. Issuers look for other ways to make money (securities lending, trading, etc.), and I personally like to charge higher fees upfront with clear and sustainable incentives. If possible, delve into the total cost of ownership. But that's not the case with the ETF rate war. People like to see that the numbers are low. 」
Of course, all the worries pale in the face of the ETF pass, after all, we are witnessing history. There is nothing more exciting than the trillion-dollar blue ocean market that comes through every ETF in the U.S., and Bitcoin's market capitalization is now $800 billion, returning to a trillion-dollar market cap to provide more users with diversification options beyond U.S. Treasuries.