The bitcoin ETFs are a hit, and it’s causing a price war
Canada was the first country to approve bitcoin ETFs. And first out of the gate was Purpose Investments, with its introduction of BTCC, on Feb. 18, 2021. That ETF cracked the $1-billion level (in assets under management) in quick order. Canadians are more than interested in investing in bitcoin. In fact, bitcoin ETFs took in 17% off all funds invested in ETFs this past February.
The ETFs and other closed-end funds that were available before them allow Canadians to invest in bitcoin inside registered accounts such as RRSPs and TFSAs. This has opened the door for many more retail investors.
The fee story
The Purpose ETF has a management fee of 1%, and the management expense ratio (MER) will be capped at 1.5%.
Second out of the gate with a bitcoin ETF was Evolve with EBIT. That ETF has attracted more than $80 million in assets under management. Despite Purpose attracting most of the press and attention for going first, Evolve quickly decreased their management fee to 0.75% so they can claim to have the “most cost-effective” bitcoin ETF in Canada. But not so fast.…
Along came CI to launch a bitcoin ETF BTCX in March, with a management fee of 0.40%. CI will likely roll $180 million from their existing closed-end funds into the ETF (investors are scheduled to vote on the rollover at the end of April 2021). The rollover would occur May 6 or May 7, according to David Barber of CI First Asset Management.
I’m not surprised to see the ETF providers engage in a “price war”—ETF investors are price-sensitive. Who will have the cheapest bitcoin ETF on the market is yet to be seen, even though the CI ETF is at 0.40% and Purpose is at 1%. There are additional fees to consider, beyond the management fee, and that is the costs for the companies (custodian and others) that help the ETF providers buy and store the bitcoin. There are also taxes that are charged on top of the management fee.
That said, ETF providers all use many of the same service providers. But economies of scale will allow one to negotiate lower fees. Only time will tell how much the biggest ETFs will be able to keep a lid on service charges. CI First Asset has a sizeable head start with that lower management fee. I’ll keep an eye on the total MERs and I’ll report back in this space.
The end of closed-end funds?
Many feel that having ETFs in the marketplace makes the closed end funds redundant. The ETFs will closely track the price of bitcoin. While the closed end funds also trade throughout the day, they can sell at a premium or discount. They do not (usually) closely track the live price of bitcoin.