If you are planning to buy Bitcoin and HODL for years to come in a tax-deferred account, ensure that the expense ratio remains permanently low. The best Bitcoin ETFs don’t just offer low temporary teaser rates—they provide a permanently low expense ratio to ensure you compound your money over time. The fact that 8 out of 10 Bitcoin ETFs have chosen Coinbase as their primary custodian does raise some black swan concerns. However, as a regulated product, we believe there is still some level of protection. Nonetheless, Fidelity has led the way in diversifying risk by setting up its own custodian.
We continue to recommend EZBC (Franklin Templeton Digital Holdings Trust) as our preferred method to gain spot Bitcoin exposure. It currently has the lowest expense ratio of any comparable ETF and is operated by a legacy financial institution.
Inflows to Bitcoin Spot ETFs can be tracked in real-time here.
Everything we recommend
Our Pick
Franklin Templeton Digital Holdings Trust (EZBC)
For most people, the one to buy
✓ Lowest Fee (0.19%)✓ Trusted Custodian (Coinbase)
Runner-up
For those who value security above all else
✓ Low Fee (0.25%)✓ Proprietary Custodian
The Franklin Templeton Digital Holdings Trust (EZBC) emerges as the frontrunner in cost efficiency, boasting the lowest fee at just 0.19%.
While other Bitcoin ETFs may entice investors with introductory teaser rates, these are temporary incentives that typically expire within 6-12 months. This highlights EZBC’s advantage as it offers a permanently low fee structure.
Why Fees matter in Bitcoin ETFs
In the realm of Bitcoin ETFs, understanding and evaluating the impact of fees on your investment returns is crucial. Expense ratios, which are annual fees charged by ETFs for management and operational costs, play a significant role in determining the long-term growth of your investment. These fees vary significantly across different ETFs and directly eat into the potential profits, compounding over time and possibly leading to a substantial reduction in your investment’s value.
While the convenience and regulatory compliance of Bitcoin ETFs offer a compelling case for investors, the recurring nature of these fees contrasts with the one-time transaction fees associated with direct Bitcoin purchases.
Among the array of options, the Franklin Templeton Digital Holdings Trust (EZBC) stands out for its remarkably low expense ratio of just 0.19%, making it a cost-effective choice for investors seeking exposure to Bitcoin through ETFs. This lower fee structure means that a larger portion of the investment’s growth remains with the investor, rather than being diminished by management costs, thereby enhancing the overall efficiency and potential return on investment in the cryptocurrency space.
When you choose to invest in a BTC ETF, the fees you pay can make a big difference in how much money you end up with. Looking at our 20-year chart, assuming a 10% CAGR, if you pick a Bitcoin ETF with higher fees, like 1.5%, you could end up with around 20% less money compared to a lower fee option of 0.2%. Fees can take a big bite out of your investment over time.
Beyond Fees: What Else Matters in a Bitcoin ETF?
While fees are undeniably a critical factor influencing returns—since they are deducted directly from the Net Asset Value (NAV) of the ETF—there’s more to consider when evaluating these investment vehicles. Security, particularly concerning the custodian responsible for holding the ETF’s assets, is concern. A breach or hack could have significant implications for investors.
Notably, eight out of the ten Bitcoin ETFs have selected Coinbase as their primary custodian, underscoring the platform’s reputation and trust within the cryptocurrency space. However, diversification in custodianship can be seen with the Valkyrie Bitcoin Fund, which has opted for not one but two custodians. Meanwhile, Fidelity distinguishes itself by developing its custodian services, demonstrating a commitment to security and perhaps offering a unique value proposition to cautious investors.
The Custodian’s Role in Your Investment’s Security
The choice of custodian is not just a matter of security logistics; it’s a critical component of an ETF’s trustworthiness and reliability. With the majority of Bitcoin ETFs placing their faith in Coinbase, there is the same level of centralization risk. Yet, the approach taken by Valkyrie and Fidelity suggests a strategic layer of risk management and self-reliance, respectively.
| ETF Name | Fee | Notes | TICKER | Custodian |
|---|---|---|---|---|
| Franklin Templeton Digital Holdings Trust | 0.19% | Fee waived for first six months of trading or first $1 billion in fund assets, whichever comes first. | EZBC | Coinbase |
| Bitwise Bitcoin ETF | 0.20% | Fee waived for first six months of trading or first $1 billion in fund assets, whichever comes first. | BITB | Coinbase |
| Ark 21Shares Bitcoin ETF | 0.21% | Fee waived for first six months of trading or first $1 billion in fund assets, whichever comes first. | ARKB | Coinbase |
| iShares Bitcoin Trust | 0.25% | Fee reduced to 0.12% for first 12 months of trading or first $5 billion in fund assets, whichever comes first. | IBIT | Coinbase |
| VanEck Bitcoin Trust | 0.25% | N/A | HODL | Gemini |
| Fidelity Wise Origin Bitcoin Fund | 0.25% | Fee waived until Aug. 1, 2024. | FBTC | Fidelity Digital |
| WisdomTree Bitcoin Fund | 0.25% | Fee waived for first six months of trading or first $1 billion in fund assets, whichever comes first. | BTCW | Coinbase |
| Invesco Galaxy Bitcoin ETF | 0.25% | Fee waived for first six months of trading or first $5 billion in fund assets, whichever comes first. | BTCO | Coinbase |
| Valkyrie Bitcoin Fund | 0.25% | N/A | BRRR | Coinbase / BitGo |
| Grayscale Bitcoin Trust | 1.50% | N/A | GBTC | Coinbase |
Background on Bitcoin Investment Methods
Previously, investors had two main ways to gain exposure to Bitcoin: direct ownership through exchanges (like Coinbase or Binance) and indirect exposure through Grayscale’s Bitcoin Trust. Direct ownership involved buying Bitcoin on an exchange and ideally moving it to a cold wallet for security, which could be cumbersome for mainstream investors. Grayscale’s trust, on the other hand, was a closed-end fund that tracked the price of Bitcoin but had several drawbacks, including a high expense ratio and potential divergence from Bitcoin’s actual price.
Introduction of Spot Bitcoin ETFs
Spot Bitcoin ETFs represent a significant development, allowing investors to gain exposure to Bitcoin’s price through a traditional investment vehicle. These ETFs aim to track the price of Bitcoin closely by holding physical Bitcoins. The approval of these ETFs is seen as a step towards institutional adoption, potentially stabilizing the market and increasing the confidence of traditional investment accounts in including Bitcoin in their portfolios.
Pros of Spot Bitcoin ETFs
- Institutional Adoption: The ETFs provide a new avenue for institutional investment in Bitcoin, which could drive up its price.
- Market Stability: With institutions likely holding Bitcoin for the long term, market volatility may decrease.
- Regulatory Approval: The ETFs’ SEC approval may lead to their inclusion in various retirement and savings plans.
Cons of Spot Bitcoin ETFs
- Centralization: Contrary to Bitcoin’s decentralized ethos, the ETFs introduce a layer of centralization.
- Indirect Ownership: Investors in the ETFs do not own Bitcoin directly, meaning they miss out on certain benefits, such as receiving new coins from forks.
- Management Fees: The ETFs come with expense ratios, which can significantly affect long-term returns.
- Counterparty Risk: The ETFs rely on custodians to hold the Bitcoin, introducing a risk of loss if the custodian faces issues like insolvency or hacking.
Should you buy Bitcoin from an exchange or buy a Bitcoin ETF? Here is a detailed table detailing the pros and cons:
| Aspect | Bitcoin ETFs | Spot Bitcoin |
|---|---|---|
| Accessibility | Easy to purchase through traditional brokerage accounts; no need for a crypto wallet. | Requires a crypto exchange account and a digital wallet for storage. |
| Tax Advantages | Can be held in tax-advantaged accounts like IRAs, potentially deferring or avoiding capital gains taxes. | Cannot be held in traditional IRAs, missing out on potential tax benefits. |
| Regulation & Security | Regulated financial products, offering a level of security and peace of mind. | Requires self-management of security measures, with varying levels of regulatory oversight. |
| Liquidity | Typically high liquidity, making it easy to buy and sell shares. | Liquidity can vary significantly between exchanges and may be impacted by network congestion. |
| Fees | Management fees can reduce returns. | Transaction fees vary; no ongoing management fees, but network fees can be high during congestion. |
| Price Tracking | Aims to track the price of Bitcoin, but may not always match the spot price due to fees and other factors. | Direct exposure to Bitcoin’s price movements. |
| Investment Minimums | Lower minimum investment compared to buying a whole Bitcoin, facilitating diversification. | Buying a whole Bitcoin may be costly, though fractional shares are available on many exchanges. |
| Complexity | Simplifies investing in Bitcoin through a familiar stock market interface. | Requires understanding of cryptocurrency exchanges, wallets, and keys. |
| Direct Ownership | Investors own shares in the ETF, not the Bitcoin itself. | Offers direct ownership of Bitcoin, with all the rights and responsibilities that entail. |
| Tax Reporting | Brokerages typically provide consolidated tax documents for ETF investments. | Investors are responsible for tracking and reporting their own transactions for tax purposes. |
Additional Considerations for Tax-Advantaged Accounts:
- Long-Term Growth: Holding Bitcoin ETFs in an IRA or other tax-advantaged account allows the investment to grow tax-deferred (traditional IRA) or tax-free (Roth IRA), which can be a significant benefit given the potential high growth of cryptocurrency investments.
- Regulatory Compliance: Bitcoin ETFs provide a way to invest in cryptocurrency while staying within the regulatory framework of traditional financial markets, making them a suitable option for more risk-averse investors or those with significant retirement accounts.
- Diversification: Bitcoin ETFs in retirement accounts allow for diversification of retirement savings, combining the potential high returns of cryptocurrency investments with the stability of other retirement assets.
Investing in Bitcoin ETFs, especially within tax-advantaged accounts, presents a blend of traditional finance’s security and cryptocurrency’s growth potential. However, it’s essential to weigh these factors