Bitcoin ETF Fee Comparison

How Much Should You Be Paying

Fact checked by Stella Osoba

What Are Bitcoin ETFs?

Bitcoin exchange-traded funds (ETFs) have emerged as a popular investment vehicle, offering investors exposure to Bitcoin’s price movements through traditional stock exchanges. These financial products trade like stocks but track the value of Bitcoin, allowing investors to gain cryptocurrency exposure without directly owning or managing digital assets.

Types of Fees

All ETFs, including those that track Bitcoin, have both direct and indirect costs. They can include:

• Expense Ratio: Covers fund management and operational costs. It’s expressed as an annual percentage.
• Custody Fees: Costs for secure storage of the underlying Bitcoin (usually built into management fee)
• Trading Commissions: Brokerage fees incurred when buying or selling ETF shares, though many brokers now offer commission-free trades.
• Bid-Ask Spread: While not a fee, the difference between the offer and bid prices affects the overall cost of trading ETF shares
• Tracking Error: Another indirect cost, this is how well (or poorly) an ETF tracks the performance of its target

Comparison of Popular Bitcoin ETFs

There are two main types of Bitcoin ETF available today: futures-based and spot ETFs. Futures-based ETFs track Bitcoin futures contracts rather than holding actual Bitcoin, which results in higher operating costs due to contract rollover and potential “contango” where futures prices exceed spot prices.

Spot ETFs directly hold physical Bitcoin and more closely track Bitcoin’s actual price, often with lower operating expenses and more favorable tax treatment.

Factors Influencing Bitcoin ETF Fees

Fee structures are influenced by a variety of factors, including the fund’s assets under management (AUM), operational and overhead costs, regulatory compliance costs, and custodial services for actual bitcoins (in the case of spot ETFs).

Competition among ETF providers for investor funds also plays a big role. Larger funds often benefit from economies of scale, allowing them to spread their operational costs across a broader asset base and offer lower fees to investors. This dynamic can create a virtuous cycle where lower fees attract more assets, further enabling fee reductions.

How to Evaluate Bitcoin ETF Fees

All else equal, investors should choose the Bitcoin ETF with the lowest expense ratio. But investors should go beyond simply comparing headline fee rates. The total cost of ownership is a crucial consideration, encompassing not just the expense ratio but also trading costs and liquidity, which can significantly impact the overall investment returns, especially for active traders.

Performance benchmarking is another factor to weigh against fees. While lower fees are generally desirable, they don’t guarantee superior returns. Investors should examine how closely an ETF tracks Bitcoin’s price movements, as tracking errors can erode returns even in low-fee funds. For long-term investors, even small differences in fees can compound over time, making fee considerations particularly important for those with extended investment horizons. It’s also essential to consider how a particular ETF aligns with individual investment goals and risk tolerance.