Bitcoin ETF war could see many issuers ‘not breaking even’ – analysts
The battle to become the top U.S.-based Bitcoin (BTC) exchange-traded fund (ETF) issuer has seen many of its listed ETFs close today due to a lack of profitability.
According to analysts, the ETF fee war may have deterred smaller issuers from joining the fray. However, silver lining investors end up as “big winners” due to falling fees.
Hector McNeil, founder of white-label ETF provider Hannetf, said: “Most ETFs launched today never break even because expenses only work if they reach the billions in assets under management, which they don't.” He told Cointelegraph.
The ten approved Bitcoin ETFs have more than $10 billion in assets under management, but the bulk is held by BlackRock and Fidelity — around $4 billion and $3.5 billion, respectively.
“Four or five will shut down. I actually think some of the ones that started will probably shut down,” McNeil added. He suspected that issuers waiting to launch their own Bitcoin funds would cancel launch plans.
“I think it's a race to the bottom and I believe there's a lot of people who are thrown into a very small pile.”
In late January, GlobalX pulled its bid for a Bitcoin ETF without explanation, while other ETF bidders Pando, 7RCC and Hashdex remained silent on their plans to cut the price of ten Bitcoin ETFs to attract investors — even before approval.
In late January, Invesco and Galaxy dropped their ETF fees from 0.39% to 0.25%, bringing them in line with BlackRock, Fidelity, Valkyrie and VanEck, although the fund offers zero fees for the first six months or until it reaches $5 billion in assets.
The pay table now looks like this: pic.twitter.com/LPvd6YwGWJ
— James Seyff (@JSeyff) January 29, 2024
Brian Armor, director of passive strategies at Maledastar Research, told Cointelegraph that “fee wars” may have pushed new Bitcoin ETF issuers because “with low fees and late launches, it's hard to become profitable quickly.”
“New issuers at this point have to bring in their own assets or rely on their distribution channels to grow,” he added.
Bloomberg ETF analyst Henry Jim said the smaller issuers “will face an uphill battle to get into this massive turf war.”
“If you keep up with payments, you won't have enough income to live on, and if you don't reduce payments, you won't be able to accumulate the mass assets necessary to survive.”
Jim said new entrants may need an investor or “deep-pocketed backer” to help them stay afloat while working to distribute an ETF.
Related: ‘ETF Multiplier Effect' to Spark BTC Frustration, Swan Bitcoin CEO Predicts
McNeil says that latecomers are better off bidding on a “next raft” offering, such as a put, covered call or ether, “unless it has something exciting or unique to launch.” (ETH) ETFs.
As ETF issuers squeeze each other with fees, McNeil, Jim and Armor all agree that ETF buyers and investors are the “biggest winners.”
Jim added that market makers will be in a winning position as investors will “pay less to access a relatively hard-to-reach market, and market makers will enjoy the liquidity in the Bitcoin markets and ETF stocks.”
Under Armor says “highly valuable distribution channels that can scale quickly” will also win in the payment wars, highlighting companies like Blackjack and Fidelity – currently the two largest issuers by assets.
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