Bitcoin ETF ‘Fee War’ Could Trigger Crypto Cost Savings
Bitcoin ETF approvals could pressure crypto firms to reduce fees for trading or custody
By: André Beganski
January 9, 2024
A Bitcoin ETF has long been blocked by Securities and Exchange Commission Chair Gary Gensler in the name of consumer protection. But now, ironically, a swarm of Bitcoin ETFs coming to market may trigger huge cost-savings for retail consumers everywhere.
As ETF hopefuls like BlackRock and Fidelity amend SEC filings in preparation for a potential launch and battle for inflows, an ongoing “fee war” — where applicants have slashed fees to make their respective products more attractive to investors — could spread far beyond Wall Street, according to Bloomberg Intelligence ETF Analyst James Seyffart.
“That's going to trickle into the crypto ecosystem,” he told Coinage in a Monday interview. “Look for commissions on some of these platforms that are typically trading [Bitcoin] to start tightening in competition with these ETFs once they're launched.”
Enabling traditional investors to gain exposure to Bitcoin cheaply, BlackRock stunned analysts with a fee waiver of 0.2% for the first year or $5 billion in its S-1 filed Monday. Initial incentives aside, Seyffart also underscored Bitwise’s management fee of 0.24% (now 0.2%) for its prospective Bitcoin ETF, alongside Ark Invest and VanEck’s 0.25%.
“These are serious, serious moves by some ETF issuers,” Seyffart added. “Some of these institutional custody platforms [for crypto] are charging higher than these full expense ratios on these ETFs.”
Crypto big-timers like Fireblocks and Coinbase have catered to financial advisors and institutions by providing SEC-compliant custody solutions. While retail investors can buy crypto with just a few clicks, there are a raft of regulations in the U.S. that institutions and advisors are required to abide by when considering digital asset exposure.
As Coinbase seeks to diversify its revenue beyond trading fees, the San Francisco-based exchange has leaned into subscriptions and services. In November, the firm disclosed it brought in $50 million in custodial fees over its first three quarters of last year — a decrease from $68 million during the same period a year ago. That number is expected to explode in 2024 as Bitcoin ETFs begin trading.
“In terms of economic impact, as we said before, the primary way that we'll monetize ETFs directly in the near term is through custody fees,” Coinbase President COO Emilie Choi said during a recent earnings call.
Coinbase told Coinage in a written statement on Tuesday that a spot Bitcoin ETF’s approval is positive, despite the prospect of increased competition.
“We believe the spot ETFs will be additive to the crypto market and Coinbase,” a spokesperson said. “These open the door for new entrants like wealth platforms, IRAs, and tax-advantaged accounts to deploy capital into crypto through a familiar wrapper, which previously couldn’t engage.”
Coinbase also highlighted its role among 9 of 11 ETF hopefuls, which have tapped America’s leading exchange as a qualified custodian to hold Bitcoin for prospective ETFs, including BlackRock, Grayscale, and Franklin Templeton, which has $1.5 trillion in assets under management.
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