The News Block #19 (01/09/2024)
ETF Issuers Jockeying to Win Investors | Financial Advisors Want Bitcoin | Billionaire Says 2024 is Bitcoin’s “Most Important Year” | Hal Finney’s “Running Bitcoin" Tweet Turns 15
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Bitcoin ETFs - Let the Race Begin:
The Spot Bitcoin ETF is all but a done deal.
Issuers have been submitting their final documents with the SEC, including Form 19b-4s and updated S-1 filings in recent days, and Fox Business reports that BlackRock expects the SEC to approve its Spot Bitcoin ETF on Wednesday, January 10th.
If you recall, this date marks the deadline for the SEC to rule on ARK 21Shares’s application, and the market is expecting this deadline will force the SEC not just to accept ARK 21Shares’s application, but also to approve multiple ETF applications simultaneously so that the agency isn’t picking winners and losers in the race for an ETF.
And what a race it will be! Bloomberg Intelligence Senior Analyst Eric Balchunas, who I just had on my show, is calling this the “Cointucky Derby,” and issuers are already jockeying for the winning Spot Bitcoin ETF, a spot that will ultimately be determined by liquidity.
Liquidity is the name of the game in the ETF world as investors are attracted to the largest funds they can easily trade in and out of. Once an ETF gains significant market share, it gains momentum, and is extremely difficult for any competing ETF to stop it once it gets going. Balchunas described it as like a snowball rolling down a hill.
It reminds me of the age-old saying, “Liquidity begets liquidity.”
This is never more evident than when you look at the history of gold ETFs. “GLD” is the oldest gold ETF and is still the third-highest revenue-generating ETF in the world, mainly because it was the first of its kind. It remains the king of the gold ETFs despite the fact that it charges higher fees compared to other similar ETFs.
This is precisely why these Bitcoin ETF issuers are racing to become the first ones on the market and are viciously competing with one another for capital. They know that this is a winner-takes-all competition and are fighting to grow their assets under management and become the largest Bitcoin ETF as quickly as possible.
If they succeed, they will be able to collect fees on their Bitcoin ETF product for decades to come. And the more capital that comes into their product, the higher their fee revenues become.
We are already seeing these issuers release advertisements and start to compete with one another on fees and other features.
The updated S-1 filings on Monday showed that many issuers have even dropped their initially reported fees in a bid to win market share and separate themselves from the pack.
Multiple ETF filers are even waiving their fees entirely for the first six months in an attempt to entice investors right out of the gate.
Last week, Fidelity made headlines when its ETF offered the lowest annual fee at 0.39%, but that is no longer the lowest.
Below is a chart from Bloomberg Intelligence Analyst James Seyffart that highlights all of the updated fees:
One filer that really stands out in terms of its fees is Grayscale. It will offer a whopping 1.5%, much higher than the other issuers.
This is likely because Grayscale, in some ways, has a massive head start compared to other issuers because it is trying to convert its trust into an ETF, which already has more than $26 billion in assets under management. It’s not important for them to attract capital right now…they already have it.
Investors who already own GBTC will now have to make a decision to either pay 5x in fees compared to other ETFs or sell and take a capital gains hit. This high fee will likely become a deterrent for potential investors moving forward.
Fees aren’t the only ways these issuers are competing though. Some are trying to win favor with the Bitcoin community with additional promises. See this recent announcement from VanEck:
In the aftermath of these likely approvals, expect competition between these issuers to hit a fever pitch. It will be entertaining to see what else these firms do in terms of marketing and other offerings to attract capital.
I don’t know which one of these issuers will eventually take the crown, but I do know who the real winner is going to be in this Cointucky Derby — Bitcoin.
Financial Advisors and the Bitcoin ETF:
It’s been a long time coming for a spot Bitcoin ETF, and one group of investors that have been waiting patiently for it are financial advisors.
According to data from Cerulli Associates, financial advisors manage around $30 trillion on behalf of retail investors, but many have not been able to allocate to Bitcoin on behalf of their clients.
Why? Well, financial advisors are choosing not to allocate to Bitcoin not because they don’t want to but because they can’t due to regulatory restrictions.
This was evident in the results of a recent Bitwise survey that asked 437 financial advisors about their thoughts on Bitcoin. Below are some of the key findings:
These results show how regulatory restrictions have prevented financial advisors from allocating to Bitcoin, and many are waiting for a Spot Bitcoin ETF to do so.
To give you an idea of the potential inflows Bitcoin could see from financial advisors alone — if only 1% of the $30 trillion they manage were allocated into Bitcoin, that would mean $300 billion would flow into the asset.
The potential inflows into these ETFs go way beyond just financial advisors too. International bank Standard Chartered recently published its own analysis that concluded that $50 to $100 billion could flow into these Spot Bitcoin ETFs in 2024 alone.
By providing large institutions with an onramp into Bitcoin, 2024 could end up being a landmark year for its adoption.
This sentiment was shared by billionaire investor Chamath Palihapitiya in a recent podcast episode, where he said that Bitcoin ETFs will kickstart the most important year for Bitcoin adoption yet.
It makes me think about how far Bitcoin has come in only 15 years. Recently, I interviewed Fran Finney, the wife of Bitcoin legend Hal Finney.
For those who aren’t familiar with Hal, he was one of the first users of Bitcoin. He was the recipient of the very first Bitcoin transactions from Satoshi Nakamoto himself.
This Wednesday will mark the 15th anniversary of this legendary tweet from Hal:
Tragically, we lost Hal way too soon to ALS. This year, I’ll be taking part in the Running Bitcoin Challenge in honor of Hal to support those affected by ALS and to spread awareness for the urgency of treatment and cures.
Please join the Coin Stories team and be a part of this great fundraiser.
2024 is set to be an exciting time in Bitcoin. It’s gone from a digital money with no price at all when Hal received that first transaction, to now a global monetary phenomenon set to go mainstream and take Wall Street by storm.
Hal Finney was one of the few people running Bitcoin back in 2009, but today, millions of people have taken up the torch to bring sound money back to the world for the digital age.
In Bitcoin, we truly stand on the shoulders of giants.
Until next week, keep stacking.
- N₿
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NEW: Race for a Winning Spot Bitcoin ETF with Eric Balchunas and James Seyffart of Bloomberg Intelligence
Eric Balchunas is an analyst at Bloomberg Intelligence focused on ETFs, writes research for Bloomberg Terminal, and is one of the creators and hosts of the Bloomberg TV series "Bloomberg ETF IQ" and the podcast "Trillions."
James Seyffart is a research analyst within Bloomberg Intelligence focusing on the broader asset management industry with specialized expertise in the coverage of ETFs, Mutual Funds, Hedge Funds, and digital assets.
These two analysts have been the go-to experts when it comes to the Spot Bitcoin ETFs. This is the perfect interview for you if you want to get up-to-speed on all the developments currently unfolding with the ETFs.
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