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March 1, 2024
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What to consider about spot bitcoin ETF fees


The Securities and Exchange Commission’s (SEC) deadline for a pending spot bitcoin ETF is this week, Wednesday, January 10. How are firms readying themselves to offer digital assets to customers in the likeliness of an approved bitcoin (BTC-USD) ETF?

Seoyoung Kim, Finance Professor at Santa Clara University’s Leavey School of Business, joins Yahoo Finance Live to talk about the bidding war that could ensue over management fees for these ETFs.

“It all comes down to who do you trust the most in terms of having the expertise to get a proper custodian in place and also who the authorized participants, or the APs, are going to be,” Kim says, weighing BlackRock’s management expertise against its fees.

For more expert insight and the latest market action, click here to watch this full episode of Yahoo Finance Live.

Editor’s note: This article was written by Luke Carberry Mogan.

Video Transcript

JOSH LIPTON: So, the news today of these potential ETF issuers, Seoyoung, for these– give us more details about their proposed funds, including fees, Seoyoung. And so I was just interested, did anything surprise you about those fees? And how do you think they ultimately, Seoyoung, impact and shape demand for these products?

SEOYOUNG KIM: I think the– so let’s start with the fees. The most interesting and shocking part to me is that Grayscale has– obviously, they are going to lower their management fee for a spot Bitcoin ETF. But right now, they’re charging 2%. And what they had announced is they intend to drop it by we talk in BIPs.

And one BIP is one basis point. That’s 100th of a percent. And they’re talking about dropping it 50 BIPs, which is half a percent. Now, that sounds very unreasonable when other types of large asset management institutions enter this space.

Something between 20 to 50 BIPs or 0.2% to 0.5% could be reasonable for something like this, where the management fee would naturally be higher than it would for something like a passively managed index where, really, would only want to see 10 to 15 BIPs. But with Bitcoin, the execution and also the custody issues are very different. And so it would make sense to charge a little bit more, but charging 1.5% per year as your management fee seems very steep.

MADISON MILLS: It seems very steep and it makes me wonder if investors are going to flock to a name like BlackRock, which is hovering around 0.3%. Do you anticipate that BlackRock could end up the liquidity king here given that they have that name recognition and the fee structure might encourage others to have to come down and meet them in the 3 zone?

SEOYOUNG KIM: I think it all comes down to who do you trust the most in terms of having the expertise to get a proper custodian in place. And also, who the authorized participants, or the APs, are going to be. And because BlackRock, even though they’re not already established in terms of having any sort of spot Bitcoin fund already, like Grayscale already has, BlackRock is such a trusted behemoth in asset management in general. And so, consumers will ultimately look for trust in an institution, but also price. And 1.5% is really steep.

MADISON MILLS: So Seoyoung, is that how we should be operationalizing this from an investor perspective? Is it that combination of trust and price or are there other factors that investors should put into their equation when they’re determining which ETF to go with here?

SEOYOUNG KIM: I think for most investors, as long as it’s an ETF issuer with a large name that you trust, your BlackRocks, your Barclays, those types of institutions. I don’t think that most retail investors are well versed to think about who an appropriate authorized participant would be in this space and what appropriate custodianship looks like. And so you really want to go with trust in the issuer.

And then, look at what the fees are and compare. I mean, price shopping is very easy these days. This has also happened in standard index funds where even 10 to 15 years ago, there were a lot of passively managed plane index funds that were charging 80, 90 basis points. And today, that is absolutely crazy. People are more educated. And price shopping is far easier now than it used to be.



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