No, the SEC has not approved any spot bitcoin ETFs yet — Tuesday afternoon, the agency’s X account was “compromised, and an unauthorized post was posted,” it explained shortly after on the social media platform formerly called Twitter.
The SEC has until end-of-day Wednesday to approve or reject 11 applications for spot bitcoin ETFs and, assuming the agency allows investment firms to launch the funds (this could go a few ways), not all of the asset managers have the same at stake. Historically, the SEC has approved ETFs in the order that applications were received, giving early birds a first-mover advantage. But that might not be the case tomorrow. It’s possible the SEC simultaneously approves all 11 bitcoin ETFs under consideration, creating an equal starting line for all the investment firms hoping to gobble up money from the investors eager to get easy exposure to the young asset class.
And in the days leading up to this potential race, the asset managers were already jockeying for position by way of fees. This week, several amended their filings with the SEC and either revealed the fees for their ETFs, or amended their fees to undercut competitors. That was a sign, according to Maurits Pot, the founder and CEO of Tema ETFs, of a battle of fees similar to many that have been fought before.
Although the cost to custody and trade the underlying bitcoins will keep fees above a certain level, asset managers already realize that size matters and lowering fees, which means giving up revenue, is better than not having a business at all.
“What people see is this has to be a volume game because margins are going to come down dramatically for the existing bitcoin ETF issuers,” Pot said. “This very quickly becomes a mainstream beta product, which will become a single-basis-point business before long. That's great because it means volume will go up and it's good for the issuers, but it means it becomes a lot less profitable and you need a lot more scale and bandwidth to actually be able to compete in this race.
”It’s possible that even some of the 11 final bitcoin ETFs won’t ultimately survive, Pots explained. In 2020, when ARK Invest’s Innovation ETF rocketed up and started attracting billions of dollars, more than a dozen innovation ETFs launched shortly after. Most of the similar funds that followed have failed and closed, he said.
But what if all those funds launched at the same time? The results might have been different.
“This is going to be a low-fee business, long term. Structurally, bitcoin fees come down, which makes it less interesting for issuers, for the BlackRocks of this world: They don't care. They have so many assets they can afford [to charge less], it doesn't catalyze their existing business,” Pot said.
The executive says that smaller asset managers — at least on a relative basis — won’t be able to afford the lower fees for as long. The rush of money to the bitcoin ETFs is expected to be one of the biggest in the history of ETF launches, but even a runaway success for a single fund won’t move the needle at a firm like BlackRock, the largest manager in the world with more than $9 trillion in assets. Asset manager 21Shares couldn't be reached by press time. Matthew Hougan, CIO of Bitwise Asset Management, declined to comment because the firm's application is still in the quiet period. The asset managers are two of the smaller 11 applicants.
“Based on our conversations with investors, the excitement is greater in the media than with investors. This is understandable, given the potential impact to [BlackRock] is just a drop in the bucket. Still, fee rates will likely be attractive and the long-term growth potential is there,” KBW analysts wrote in a note about BlackRock’s upcoming earnings on Jan. 12. “First-mover advantage will likely be watered down if many applications are approved at once. Given BLK’s brand and unrivaled distribution, we believe BLK is set up to be a clear winner.”
If spot bitcoin ETFs are approved, that will begin a whole new chapter of crypto ETFs, Pot said. Like in other cases, there will be other trading products created based on the ETFs.
