Would-be spot bitcoin ETF issuers kick off fee war ahead of approval deadline

By Niket Nishant, Hannah Lang and Suzanne McGee

(Reuters) -A raft of investment managers on Monday disclosed the fees they plan to charge for their proposed spot bitcoin exchange-traded funds (ETF), in another step toward approval this week by the U.S. securities regulator.

BlackRock, VanEck, Ark Investments/21Shares and Bitwise, among others, said in filings with the Securities and Exchange Commission (SEC) that they expect to significantly undercut the average market rate for U.S. ETFs as the battle for market share heats up ahead of an SEC approval deadline on Wednesday.

Bitwise came in the lowest at 0.24%, compared with the 0.54% average for U.S. ETF products, according to Morningstar, followed by VanEck at 0.25%. Ark and 21Shares lowered their planned fee to 0.25% from 0.80%, while BlackRock said it would charge 0.30%.

Fees are typically among the final details nailed down before an ETF launch. Market participants anticipate the SEC will approve the spot bitcoin ETFs this week in a watershed for the industry, which has been trying for a decade to bring the product to market.

"This is unprecedented," said Todd Rosenbluth, head of research at VettaFi, a data analytics firm. "Having a real race right out of the gate in that context is going to be ... dramatic and exciting."

The SEC has previously rejected all spot bitcoin ETFs, citing investor protection concerns. Hopes it would finally approve the product surged last year after a federal appeals court ruled that the agency was wrong to reject Grayscale's application to convert its existing Bitcoin Trust (GBTC), which charges a 2% fee, into a spot bitcoin ETF.

The company said on Monday it would charge 1.5% for the proposed ETF, by far the highest of the fees so far disclosed.

Grayscale CEO Michael Sonnenshein said the company had been in frequent contact with the SEC in recent months about the product.

"It's been very encouraging to work together to pave the way for these products to come to market," he told Reuters in an interview.

The race to launch a spot bitcoin ETF has pitted crypto companies such as Grayscale Investments against traditional finance heavyweights including BlackRock and Fidelity.

Bryan Armour, an ETF analyst at Morningstar, said fees are one of the most important differentiators for a buy and hold investor. "There's no reason to pay more for the same exposure," he said.

For short-term speculators, though, liquidity will be more important than fees, said James Angel, associate professor of finance at Georgetown University's business school.

It's unclear how much money spot bitcoin ETFs could reel in, with a wide range of estimates from market players, ranging from $3 billion on its first day to $55 billion over five years.

In a note on Monday, Standard Chartered said it anticipated inflows of $50 billion to $100 billion in 2024 alone.

Hopes the SEC will approve a bitcoin ETF has helped shore up confidence in the crypto industry, which was rattled by the FTX meltdown and other crypto collapses last year.

A spot bitcoin ETF would give investors exposure to bitcoin without directly holding it, drawing potentially billions more dollars into the world's largest cryptocurrency. Bitcoin was last up 2.01% at $44,828.

Some financial regulatory experts, including Washington advocacy group Better Markets, have said the crypto market is rampant with fraud and that approving the product would be a "historic mistake."

In a social media post on Monday, SEC Chair Gary Gensler warned that crypto investments "can be exceptionally risky & are often volatile," and noted that a number of crypto platforms and crypto assets have become insolvent.

(Reporting by Niket Nishant in Bengaluru, Hannah Lang in Washington and Suzanne McGee; Editing by Shinjini Ganguli, Shounak Dasgupta, Michelle Price and Jonathan Oatis)