Canada’s Bitcoin ETF Fee War Ignites

[Editor’s Note: This article was one of ETF.com's most popular of 2021.]

The urgency for a bitcoin ETF couldn’t be greater, with prices for the cryptocurrency back near record highs. Bitcoin topped $58,000 on Thursday, matching the high from Feb. 21, and completely recovering its rapid 26% plunge during the last week of the month.

While U.S. investors don’t yet have access to a bitcoin ETF listed on a domestic exchange, their options are opening up. The CI Galaxy Bitcoin ETF (BTCX) became the third bitcoin ETF to be launched on the Toronto Stock Exchange when it began trading on Tuesday.

Like the competing Canada ETFs that launched before it, BTCX will offer exposure to bitcoin held in cold storage. BTCX’s late start certainly puts it at a disadvantage compared to the Purpose Bitcoin ETF (BTCC) and the Evolve Bitcoin ETF (EBIT)—which have gathered $706 million and $52 million in assets under management, respectively, in just three weeks—it comes to market with a category-low expense ratio of 0.40%, undercutting the 1% fee for BTCC and the 0.75% fee for EBIT. (See “CI Galaxy Bitcoin ETF Begins Trading on the TSX”)

Bitcoin Price

BTCX’s launch now gives investors three options for bitcoin exposure via North America ETFs. They’ve already had exposure to bitcoin through European-listed exchange-traded products for quite some time now, but those ETPs never really gained much traction with U.S. investors.

Still, for now, the European ETPs have more assets than their Canadian counterparts. Sweden-listed Bitcoin Tracker One (BITCOIN XBT) and Bitcoin Tracker EUR (BITCOIN XBTE) have a combined $3.3 billion in assets under management. The Germany-listed BTCetc Physical Bitcoin ETC (BTCE) has seen similar levels of success, gathering $1.3 billion in assets.

Another Ethereum Product Launched

This week, another European product—this one tied to ethereum—launched in Germany. The ETHetc Physical Ethereum ETC (ZETH) joins its sister product on the Deutsche Borse, and brings fresh competition to the Ether Tracker One (ETHEREUM XBT) and the Ether Tracker Euro (ETHEREUM XBTE), both listed in Sweden. (See ETC Group list first Ethereum Exchange Traded Product on Deutsche Börse’s XETRA)

Ethereum Price

The sudden influx of new crypto ETPs—especially the ones from Canada—have certainly attracted the interest of U.S. investors, who, up until now, were severely limited in the ways they could get exposure to digital currencies through their traditional brokerage accounts.

Now that they can get that exposure (at least with a brokerage account that provides access to foreign ETFs), there’s been a noticeable drop in the demand for the Grayscale Bitcoin Trust (GBTC).

GBTC Falls Into A Discount

GBTC, which trades over the counter and has $37 billion in AUM, has historically traded with large premiums to its net asset value. But that premium turned into a discount of as much as 12% earlier this month, an indication that competition from ETFs (where premiums and discounts can more readily be arbitraged away) may be eating into the demand for the quasi-closed-end fund.

Grayscale’s parent company, the Digital Currency Group, has taken note. On Wednesday, it announced its intention to purchase up to $250 million worth of shares of GBTC on the open market. If successful, that could close the gap between GBTC’s market price and its NAV.

GBTC doesn’t currently offer redemptions, so this is a more indirect way of potentially eliminating some or all of its current discount. (See Digital Currency Group Announces Plan to Purchase Shares of Grayscale Bitcoin Trust)

GBTC Premium/Discount To NAV

All this talk of discounts and premiums would, of course, die down if a U.S.-listed bitcoin ETF ever gets approved. Expectations are growing that one could be approved later this year, and many issuers are lining up to be among the first out the door with a bitcoin ETF were that to happen.

The latest is WisdomTree, with its WisdomTree Bitcoin Trust (BTCW), which, if it were to come to market, would be listed on the Cboe BZX Exchange. See WisdomTree Files for Bitcoin ETF (BCTW)

Sumit Roy can be reached at [email protected]