🥇 The Best Bitcoin ETF

We won! (We're not dumb money after all)

After 10 long years we finally have access to Bitcoin in our brokerage accounts.

Don't be fooled, this isn't actual Bitcoin - it's just price exposure

But that's going to be a good enough starting point for most people

So if you've been Bitcoin curious for a while - congratulations!

It's never been easier to get started than it is today.

So what's the best ETF?

Instead of exhausting you with the pros and cons of every fund I'll be giving you a descision making framework so you can choose what is right for you.

If you want the TL;DR I'm using Fidelity's product FBTC

The first question I ask when I'm evaluating any ETF is:

How much are they charging in fees?

ETF fees can destroy your returns

A 1.5% fee doesn't sound like a lot but over 30 years it can eat over 20% of your investment assuming average returns

This can increase to over 40% of your investment assuming poor returns

It can get confusing to think about because fees exponentially take away your money

A 1.5% fee is 6x higher than a 0.25% fee

But you'll pay more than 6x the amount with the 1.5% fee over long periods of time

If that doesn't make sense, you can put your assumptions into this calculator to see how fees will affect your performance.

Bottom line: fees can destroy even a great investment - stay away from them.

For that reason I'm avoiding the Grayscale, Hashdex, Valkyrie, and Invesco Galaxy ETFs

Next we have to talk about the elephant in the room -

Who is holding all this Bitcoin?

There's a popular phrase in the Bitcoin community - not your keys, not your coins

It's the Bitcoin way of explaining counterparty risk

Counterparty risk exists and you should understand it - it's what caused Bitcoin investors to lose a lot of money with Mt. Gox and FTX

The fact of the matter is all but one of these ETFs is giving their coins over to a 3rd party custodian

That means when you buy $100 of the BlackRock ETF, BlackRock buys $100 of Bitcoin and gives it to someone else for safe keeping

In this case that someone else is Coinbase - who are the most trusted custodian in the world

To steel man Coinbase Custody:

Over the last 10 years if you left your Bitcoin on Coinbase you'd still have all your Bitcoin

If you took self custody in the last 10 years you might be looking for your Bitcoin in a landfill

But, it is concerning that 75% of these ETFs are using Coinbase for their custody

The standouts not using Coinbase are:

Fidelity are using their own Fidelity custody solution (which is epic)

VanEck are using Gemini

Hashdex (who we have eliminated due to high fees) are using BitGo

and Valkyrie (also eliminated for fees) are using a combination of Coinbase and BitGo (cool that they're diversifying custody)

Points to Fidelity here for investing in their own custody solution - signaling that they're serious about Bitcoin

I expect this will also keep their fees competitive because they are less reliant on a third party

Long term viability of these products is important.

You don't want to have to switch ETFs every 3 years because the company went under.

Who has staying power?

One metric we can look at as a proxy for staying power is Assets Under Management (AUM) and the flows

AUM is how much Bitcoin do these funds hold

More is better for the institution:

- It allows them to charge lower fees

- Gives them more liquidity

- Allows them to optimize the execution (creation/redemption) of the ETF

You can think of flows as change in AUM over time

It's like real time market feedback of which ETF is most trusted

Right now there are three that are massively in the lead:

Grayscale (GBTC): $23.75 Billion

BlackRock (IBIT): $5.68 Billion

Fidelity (FBTC): $4.25 Billion

and two more that have significant volume, ahead of the rest

Ark (ARKB): $1.29 Billion

Bitwise (BITB): $1.03 Billion

The rest of the ETFs are far below the $1 Billion AUM mark

GBTC is an outlier - their product is 11 years old and they have by far the highest fees in the market

Because the fees are so high, they've experienced massive outflows from their fund

I expect GBTC will lose their top spot to IBIT or FBTC who are charging much lower fees for essentially the same product

This is especially true in the case of IBIT who are using the same custodian (Coinbase) as GBTC

Proving the point we covered earlier, all 5 of these funds (except for GBTC) have the lowest fees in the market

More liquidity = lower fees (and vice versa)

For that reason, these are the 4 funds that everyone should be looking at

What differentiates these 4 leaders?

The differences we're looking at are very small Bitwise and Ark have the lowest fees but they're smaller institutions than BlackRock and Fidelity

To me (an idiot, not financial advice) it seems like they are able to charge lower fees because they are okay not making money on these ETFs

I find it hard to believe that Coinbase would give better custody terms to Ark and Bitwise vs BlackRock

Fidelity is the only fund that has developed their own custody solution (and the only one of these 4 not using Coinbase Custody)

Bitwise has started to differentiate themselves by providing "crypto-native" aspects of their product. (ie. publishing their wallet addresses, communicating with the audience on Twitter/X, etc)

BlackRock has the highest AUM and thinks it's funny that I can't buy a house

And Ark has been putting out Cathie Wood interviews where she tells you that Bitcoin is going to go up 30x in the next 5 years

My Picks For You

You want a Bitcoin ETF from a trusted industry expert: Fidelity's FBTC ETF

You want a Bitcoin ETF from a trusted industry expert and you think it's funny that millenials can't buy homes: BlackRock's IBIT ETF

You're a hard core Bitcoiner who wants exposure to an ETF for some reason: Bitwise's BITB ETF

You like Cathie Wood: Ark's ARKB ETF

What's going to happen next?

Keep up to date on all this information by following this great dashboard from Blockworks (no affiliation just a great page)

Prediction time (not financial advice):

In the next 1-5 years we get the ability to do in-kind creation vs cash create for these ETFs (the ability to cash out your ETF position for Bitcoin in a self custody wallet)

We'll see lower fees, more liquidity, and optimized creation/redemption from the market leaders

We'll see more funds try to differentiate themselves like Bitwise in making their products "crypto-friendly"

We'll see more investment advisor money enter the space as these ETFs become more popular and their regulatory statuses change

I doubt an ETH ETF will be approved anytime soon because of the difference in market structure (DeFi, layer 2 coins, etc) compared to Bitcoin

For more hot takes follow me on Twitter and YouTube

See you next week