Which Spot Bitcoin ETF To Go For? Factors To Consider?

After a long wait for more than 10 years since the first filing, the SEC has finally approved a spot bitcoin exchange-traded fund (ETF).

A total number of 11 Spot Bitcoin ETFs was approved, these has began trading on Thursday (11 Jan), have you invested in any of them? I personally think that Spot bitcoin ETFs are the best option on the fund market for bitcoin investors, especially for investors who does not want to hold Bitcoin as crypto currency. Moreover, the price of Bitcoin has been very high, unlike 10 years ago.

Allow me to share a very brief explanation of what is a Spot Bitcoin ETF, it is basically refer to ETF that holds bitcoin, the performance of these ETFs should follow bitcoin prices closely, minus fees and the fund’s trading costs.

A spot price refer to price of a security that is available immediately. Futures prices refer to prices at a future date. Stocks and bonds trade at spot prices (current prices), commodities trade at future prices (which allows buyers to lock in a specific price and complete the transaction at a future date).

In this article I will be sharing on how I have analysed yesterday Spot Bitcoin ETF trading and also their fee, which include the waiver. Do we see any pattern as to why investors are buying into them on the first day?

A fierce fee competition have been created during the application process between the issuers. After this ETFs are approved, we could see that there are 7 out of 11 funds which are giving fee waiver with period ranging from 3 months to 12 months.

Fee competition have always benefit investors and lower fees and costs have become important to attract new funds. But is that the reason why some fund see more volume traded yesterday?

For example, we could see Grayscale Bitcoin Trust (GBTC) charges 1.5% without any fee waiver, and we could see Bitwise Bitcoin ETF (BITB) and ARK 21Shares Bitcoin ETF (ARKB)

harges 0.20% and 0.21% respectively and even provide fee waiver for 6 months.

In the next section, we shall look at the trading volume, the top 2 and bottom 2, and see if any of these 3 funds fall into one of these categories.

As mentioned above, we can only see GBTC having the highest trading volume despite not having any fee waiver, this might show us that there are some investors who are more focused on liquidity. These could be active ETF traders.

Those who are concerned about the fees did not fare too bad as well, ARKB and BITB have traded volume more than 4 millions.

Maybe we can look at the profile of Buy-and-Hold Investors and Active ETF Traders

Bitwise Bitcoin ETF has the lowest actual fee of 0.20%, the fees from ARKB is only 1 basis points from BITB. The fee waivers is to help issuers attract investors, but do remember that waivers are temporary.

Buy-and-Hold investors need to focus on long-term and continue with the ETFs with the lowest cost minus the waiver. There are plenty of options for this group of investors.

We will not see or see very minimal Buy-and-Hold investors with Grayscale as the high fee will eat into their return. But buy-and-hold investors most likely will be buying into more expensive ETF.

Active ETF traders could be day traders who does frequent trading and large trades, this comes with liquidity costs that could add up quickly for them.

There are 2 parts which could explain how active ETF trader would do, basically to put it simple would be if they were to decide on 2 ETFs of similar price, it would be more cost-effective to buy the one with higher bid, lower ask.

This group of traders would also be concerned of find enough shares to buy or sell near the current price. Because tighter bid-ask spreads often indicate deeper liquidity, meaning more shares available to buy or sell near the current price. It is more important for investors trading large chunks of shares at one time so that the market impact of their trading does not overly influence the price.

For me, I am going to invest in the ETF for buy-and-hold and also allow me to trade for profit occasionally. So fees would be a concern for me, if the amount to own is substantial, at the same time, this ETF need to have certain level of liquidity, meaning the traded volume would be on the higher among others.

While I can enjoy the reduction of fees now from 0.25% -> 0.12%, and future add on of shares would be at higher 0.25%, but judging from the volume traded on 12 Jan, it is pretty significant.

And the price of the ETF currently sit below $30, which could make it a potential for more upside as Bitcoin continue to move upside.

From 12 Jan trading, we could see that buying interest was high in the first hour of trading, and then we start to see some selling bringing the price down from $29ish to $26ish.

After that, the price seems to hold stable and traded sideways.

Based on what I have analyzed, I would be looking to invest into IBIT with an entry price around $26 to $26.20. But I will be monitoring its price action and trading volume.

This might be the period where some investors are still deciding whether they want to be buy-and-hold or active traders for this ETF.

Appreciate if you could share your thoughts in the comment section whether you think IBIT would be a good Spot Bitcoin ETF to go into?

Disclaimer: The analysis and result presented does not recommend or suggest any investing in the said stock. This is purely for Analysis.