The long-awaited launch of a spot bitcoin exchange-traded fund (ETF) in the United States could be just months away, with the Securities and Exchange Commission (SEC) set to decide on several applications by mid-March 2023. Ahead of that deadline, issuers are kicking off what may become an intense fee war as they vie to attract investor money into their products.

BlackRock Sets the Bar

Investment giant BlackRock made the first major move in late December, announcing plans to charge just 0.30% per year for its proposed spot bitcoin ETF if approved. For context, the US’s average expense ratio for equity ETFs stands at 0.47%, according to data from Morningstar. 

BlackRock’s proposed fee undercuts the next lowest figure of 0.40% set by Anthropic, a San Francisco-based AI safety startup turned crypto issuer. Other applicants like WisdomTree and One River Asset Management had proposed higher fees of 0.95% and 0.75%, respectively, for their bitcoin ETFs.

By setting the bar at 0.30%, BlackRock is clearly looking to gain an early advantage over competitors if its application is successful. As the world’s largest asset manager with over $10 trillion in assets, it can afford to price aggressively thanks to economies of scale. Lower fees are also important for attracting flows from investors who remain wary of high costs for crypto products.

“BlackRock is coming out swinging with that ultra-low 0.30% fee. They want to capture as much of the market as possible right out of the gate,” said Todd Rosenbluth, head of ETF & mutual fund research at CFRA. “It’s a bold move that could pressure other issuers to follow suit and sharply bring their proposed fees down, too.”

Fee Cuts on the Way? 

With the SEC decision date fast approaching, other bitcoin ETF hopefuls are likely to respond to BlackRock’s challenge in the coming weeks. Analysts expect at least some issuers will be forced to slash proposed fees to remain competitive.

“There’s no way fees above 0.30% will cut it now. Investors will flock to the cheapest options, so other issuers must match or beat BlackRock’s rate,” said Nate Geraci, president of ETF Store, an advisory firm. 

One name being closely watched is ProShares, a major ETF provider that has two pending spot Bitcoin ETF applications. It had initially proposed higher fees of 0.95% for both funds, well above BlackRock. Sources indicate ProShares is now considering lowering fees into the 0.30-0.40% range.

Anthropic, WisdomTree, and VanEck – all applicants with proposed fees above 0.40% – are also under pressure to respond. None have committed to cuts yet, but analysts expect moves are likely. The fee war could intensify further if the SEC approves multiple bitcoin ETFs, allowing for direct fee competition between issuers.

Investors Hope for Lower Cost Access 

The prospect of lower-cost bitcoin ETFs is appealing to investors and financial advisors. Cryptocurrency remains an attractive portfolio diversifier given its low correlation to traditional assets, but high fees have deterred some. A 0.30% ETF would open the door to cost-efficient crypto exposure through traditional brokerages. 

“Many advisors are interested in bitcoin but were hesitant due to expense ratio concerns. A fee close to 0.30% makes the asset class much more justifiable as a small allocation,” said Randy Cameron, a financial planner at Cameron Wealth Advisors. 

Individual investors also stand to benefit. At current bitcoin prices near $20,000, a 0.30% fee on a $10,000 investment would amount to just $30 per year. Compare that to $95 at a 0.95% rate, providing meaningful savings over time.

Winners and Losers in the Fee War

With the Bitcoin ETF approval deadline fast approaching, issuers find themselves in a race to the bottom on fees. With BlackRock setting an aggressive benchmark, others must respond or risk losing the first-mover advantage of capturing investor flows. 

With its massive scale and first-to-market 0.30% proposal, BlackRock looks well-positioned to emerge as a major winner if its application succeeds. But competition is also an opportunity – lower overall fees should help stimulate broader adoption of Bitcoin as an investable asset class.

Ultimately, the biggest winners may be investors and advisors now poised to gain more cost-efficient crypto exposure through their traditional brokerages. And that could be a catalyst for the next stage of growth and maturation for both Bitcoin and the digital asset industry as a whole.”

ProShares Cuts Fees In Response To BlackRock 

As expected, ProShares has responded to the competitive pressure from BlackRock’s proposed 0.30% fee for its bitcoin ETF. On January 5th, ProShares filed amendments with the SEC to lower the fees for its two pending bitcoin ETF applications. The ProShares Bitcoin ETF will now charge 0.95% annually, down from the initial 1.25% proposal. Meanwhile, the shorter-duration ProShares Bitcoin Strategy ETF will have a 0.85% fee, lowered from 1.10%. 

While still above BlackRock’s benchmark, the cuts show that ProShares recognizes the need to remain competitive on costs. As one of the largest traditional ETF issuers, ProShares wants to ensure its products are not overlooked due to higher expenses. The amendments increase the likelihood that at least one ProShares bitcoin ETF will be approved if other factors check out.

WisdomTree Joins The Fee War 

On January 10th, WisdomTree filed its own response in the form of lower proposed fees. Its WisdomTree Bitcoin Trust will now charge 0.95% per year, down sharply from the initial 1.50% rate. Similarly, the WisdomTree Bitcoin Strategy Plus Fund saw fees cut to 0.85% from 1.40%. 

Like ProShares, WisdomTree clearly felt pressure to adjust after BlackRock’s aggressive move. At 0.95%, WisdomTree’s bitcoin product is still above BlackRock but within the range that analysts think investors will tolerate. The cuts show issuers understand keeping costs low is crucial to winning overflows in the nascent US bitcoin ETF market.

VanEck Delays Fee Cut, Stays Above Pack

In a surprise move, VanEck did not immediately lower fees in response to BlackRock. Its bitcoin strategy ETF still proposes charging 1% annually, as outlined in November filings. VanEck may feel its first-mover status and brand recognition can offset a higher price. However, analysts say waiting risks ceding early market share gains to cheaper rivals like BlackRock if multiple ETFs launch simultaneously.

VanEck will face intensifying pressure to cut fees over the coming weeks as approval timelines near. Staying above 1% may prove untenable in the long term as issuers continue slashing costs. For now, VanEck is betting its brand can overcome a fee disadvantage, but that calculus may change if competitors keep undercutting.

SEC Decision Looms Large

With proposed fee amendments now submitted, attention turns to the SEC. Will multiple applications be approved simultaneously, allowing for direct ETF competition? If so, fee wars may intensify further. Analysts expect one and possibly two ETFs to be greenlit by the March 17th deadline. However, the SEC remains unpredictable, and some risk of delay remains.

Regardless of timing, lower fees have already benefited investors ahead of any ETF launches. Issuers racing to the bottom on costs is a testament to both the demand for crypto access and competitive pressures building in the space. Over the long run, cheaper products should help further the mainstream adoption of Bitcoin and digital assets.

Finalize The Talk

The fee war being waged by issuers seeking to launch the first US Bitcoin ETF has already delivered major wins for investors. With proposed costs slashed sharply from initial levels, accessing bitcoin through traditional brokerages will soon be more affordable than ever before. 

Lower fees help address one of the major barriers preventing wider crypto adoption. As costs come down toward equity ETF levels, more financial advisors and their clients will feel comfortable allocating a small portion of portfolios to Bitcoin. This could be the catalyst that takes the asset class mainstream.

Regardless of which issuer ultimately sees their application approved first, competition ensures investors get the best possible pricing. The race to the bottom shows how issuers must adapt to the demand for lower fees in emerging asset classes like digital currencies. 

Looking ahead, approval of the first Bitcoin ETF is likely just the beginning. More products from additional providers are expected in its wake, keeping pressure on costs. Innovation will also continue with ETFs focused on bitcoin futures, altcoins, and crypto indexes.

After over a decade of growth, 2024 looks poised to be a watershed year for cryptocurrency as an investable asset. The long-awaited launch of that first US Bitcoin ETF will open the floodgates, bringing crypto to the masses through traditional brokerages. And with fees falling rapidly, access will come at a very reasonable price.