Only July 1, 2013, Cameron & Tyler Winklevoss filed to launch the Winklevoss Bitcoin Trust. At the time, it was considered a groundbreaking product, but the SEC was nowhere near ready to approve an ETF that invested in an unregulated asset in an unregulated market.

This week, more than 10 years later, the original vision of the Winklevoss twins comes to life! The SEC has finally approved the launch of spot bitcoin ETFs!

History of Spot Bitcoin ETFs

Even though the Winklevoss Trust was originally filed for in 2013, it wasn't until 2017 that it was rejected by the SEC. The theme of the SEC not being comfortable with the unregulated nature of crypto and the potential for fraud is something that's existed throughout the past 10 years, but it hasn't stopped other issuers from trying to bring a spot bitcoin ETF to market.

Grayscale launched the Grayscale Bitcoin Trust (GBTC) back in 2013 as a private trust available only to accredited investors before getting listed for trading to retail investors in 2015. Why is GBTC available for trading and other products aren't? It's traded in the over-the-counter market where SEC approval isn't required, although it did need FINRA approval for trading. It's also organized as a closed-end trust, which means the market price can deviate significantly from its underlying NAV. It provides exposure to bitcoin in the technical sense since the trust holds bitcoin, but the premium/discount to NAV means that exposure is far from direct or reliable.

Issuers, including Bitwise and VanEck, tried to launch their own bids a few years ago, but ran into a similar ETF roadblock.

The landscape began to change in late 2017 when the CBOE listed the first bitcoin futures contracts to begin trading. Once a period of time had passed to ensure that these contracts would trade effectively, attention to turned to the ETF space and whether or not the SEC would approve a product that held these bitcoin futures contracts. After all, dozens of ETFs that held nothing but futures contracts already existed. In October 2021, the SEC agreed and approved the launch of bitcoin futures ETFs.

The problem for the ETF issuers, however, was that one ETF, the ProShares Bitcoin Strategy ETF (BITO) got a three day launch head start over the 2nd ETF, the Valkyrie Bitcoin Strategy ETF (BTF) (which has since become the Valkyrie Bitcoin & Ether Strategy ETF. In the ETF space, the first mover advantage is huge and ProShares ended up getting all the assets. Of the $2.3 billion total invested in cryptocurrency ETFs right now, more than $1.8 billion of it is sitting in BITO.

The problem for ETF investors is that the performance of bitcoin futures ETFs looks something like this.

Because of the roll costs involved in moving to the next futures contract once the current one expires, bitcoin futures ETFs will very likely always trail the performance of bitcoin itself. In just the last year, BITO trails bitcoin by a 171% to 151% margin, not an insignificant number by any means.

That's why spot bitcoin ETFs are viewed as necessary. If you're going to invest in bitcoin, it's best to invest in the coin itself, not a derivative of it. These products already exist in Canada & Europe and trade without issue, so the SEC should have plenty of examples to make it comfortable with how they'll work in the United States.

What's Changed Now

Prior to the latter part of 2023, the usual path for bitcoin ETF filings was this:

• issuer files for the spot bitcoin ETF

• wait

• SEC delays its decision on whether or not to approve

• wait some more

• SEC delays its decision again

• wait some more

• SEC denies approval of the ETF

The biggest thing was the silence. The SEC never really wavered from its fear of fraud and manipulation and the radio silence was mostly viewed as just not wanting to deal with it. Even though the "delay instead of denial" provided about 5% optimism, a denial was always the most likely outcome.

That changed in the 2nd half of last year. The SEC actually began seeking comments from issuers, investors & other interested parties and invited issuers to file/refile for their bitcoin ETFs based on their feedback along with the SEC's. This was the breakthrough indicating that the SEC was willing to have the discussion instead of just saying nothing at all.

The last month or so has been filled with back-and-forth between the SEC and the issuers and a number of amendments to their filings basically to address anything that the SEC might feel uncomfortable with. Among the biggest hang-ups were oversight (how are the issuers going to monitor/address manipulation & fraud) and custody (where is the physical bitcoin going to be held). Those conversations between the SEC and the potential bitcoin ETF issuers were the biggest reason why a bitcoin ETF approval is viewed as very likely at this point.

Why Was The January 10th Date So Important?

Quite simply, this is the decision deadline date for the ARK 21Shares Bitcoin ETF (ARKB). ARK was one of the original filers for a bitcoin ETF and the SEC has a specific period of time with which to respond to the filing. For ARKB, January 10th is the final day.

There was always the possibility that ARKB would be the only one that was approved on Wednesday since it was the only one of the filings with this deadline, but I think the SEC saw what went on with bitcoin futures ETFs and how one ETF got the head start and ended up controlling the market (the same thing happened with blockchain ETFs as well). It's just easier and more fair to let everyone go all at once who has their ducks lined up and is ready to go.

The List of Bitcoin ETFs & Their Outlooks

Now that we've finally hit the finish line, it's time to take a look at each of the bitcoin ETFs that's been approved and their prospects for the future.

There are 11 in total. Since they all are effectively the same in that they hold bitcoin, we really need to look closely to find differentiators. Cost is going to be a big one and the issuers clearly realize that as well since they were cutting expense ratios up until the last minute to compete.

Let's break them down one by one in the order they're listed here.

Bitwise Bitcoin ETF Trust (BITB)

Expense Ratio: 0.20% (currently 0.00% with fee waiver)

Outlook: Good

Bitwise may not seem like a potential winner when competing with the likes of BlackRock and Fidelity, but BITB is actually a real dark horse here, in my opinion.

As of right now, they've got the lowest expense ratio of the bunch at 0.20%, which starts at nothing with the fee waiver. Bitwise is also a crypto index manager and crypto is all they do. I think a lot of investors will at least consider an issuer whose entire business model is around crypto and bitcoin.

Plus, there's this little nugget in their recent filing.

Supposedly, Bitwise has a nine figure commitment from Pantera, which has roughly $3.6 billion in assets. There may be more companies out there interested in working with a crypto expert than I think there are.

ARK 21Shares Bitcoin ETF (ARKB)

Expense Ratio: 0.21% (currently 0.00% with fee waiver)

Outlook: Good

Cathie Wood has been involved with bitcoin for years and utilizes GBTC for bitcoin exposure in several of the ARK funds. Their current position looks to be around $80 million or so and that would presumably all move over to ARKB pretty soon. A bitcoin ETF certainly falls in line with ARK's disruptive innovation theme and the 0.21% expense ratio is very low in this space. ARK typically charges 0.75% for its funds, which is where I thought this fund would come in at, so ARK is in it to win it.

The shine has come off of ARK in general, though, after 2022's miserable performance, so it could be interesting to see how many investors are willing to play in the Cathie Wood sandbox again.

Fidelity Wise Origin Bitcoin Trust (FBTC)

Expense Ratio: 0.25% (currently 0.00% with fee waiver)

Outlook: Very Good

Fidelity is going to compete on size and scale, if nothing else. Even though the company isn't necessarily a huge player in the ETF space yet, it has trillions of dollars in assets overall and will certainly leverage that in order to offer crypto to its current clients. Fidelity is as well-recognized as any money manager in the world and that should certainly help attract assets where some of the other issuers on this list might not have that advantage.

It's priced to move as well, so I expect FBTC to be one of the three largest bitcoin ETFs after the initial mania cools.

WisdomTree Bitcoin Trust (BTCW)

Expense Ratio: 0.30% (currently 0.00% with fee waiver)

Outlook: OK

WisdomTree is certainly a popular issuer within the ETF marketplace (it's currently #9 overall in total assets), but a bitcoin ETF is a little off-brand. The company does have ETFs covering cybersecurity, cloud computing and artificial intelligence, but the vast majority of their U.S. ETF assets are currently in broad-based stock and bond ETFs.

I love a lot of the WisdomTree ETFs and this is certainly no knock against them. I just think they're geared more towards the regular investor and I'm not sure that people are going to think of WisdomTree if they want to own bitcoin.

Invesco Galaxy Bitcoin ETF (BTCO)

Expense Ratio: 0.39% (currently 0.00% with fee waiver)

Outlook: OK

Invesco is a bigger issuer than WisdomTree and I believe they probably have a better chance at picking up some assets in their bitcoin ETF, but I'm just not seeing a lot that makes them stand out among the other issuers. The fee waiver to begin with is a good start, but the 0.39% after the waiver puts them near the bottom of the bitcoin ETF list. And we know how ETF investors feel about their fees.

I wouldn't be surprised though if Invesco does relatively well. There's enough name recognition, especially with their suite of Nasdaq 100 and adjacent ETFs, to gain some traction and there could be some spillover effect.

Valkyrie Bitcoin ETF (BRRR)

Expense Ratio: 0.49% (currently 0.00% with fee waiver)

Outlook: Not Good

Valkyrie is experienced in trying to bring a crypto ETF to market already. Their bitcoin futures ETF is the 4th largest (unless you count the 2x bitcoin futures ETF) despite it being the 2nd to market. It's understandable that it didn't catch up to BITO, but VanEck's and ProShares' bitcoin futures ETFs managed to pass it despite launching much later. That's not a good sign for the small guy competing with the bigger names.

If it can't keep up with the bigger issuers despite a head start, what's to make us think it can compete with the BlackRocks, Fidelitys and ARKs of the world when their bitcoin ETFs all launch at the same time. I think Valkyrie attracts modest assets and sticks around for a little while, but I think it's very likely it gets drowned out. Plus, their fee after waiver is one of the highest.

iShares Bitcoin Trust (IBIT)

Expense Ratio: 0.25% (currently 0.12% with fee waiver)

Outlook: Excellent

Here's the easy favorite to be the winner in the bitcoin ETF race. Like WisdomTree's product, a bitcoin ETF is a little off-brand for BlackRock, but it has such an advantage on size and scale, that it's difficult to imagine IBIT not being a resounding success.

The odds of a bitcoin ETF getting approved by the SEC seemed like a long shot until BlackRock announced they were getting in the race. After all, if BlackRock wants to launch a bitcoin ETF, they must know something that the rest of the street doesn't, right? They may or may not have inside knowledge, but they've been involved in this process pretty heavily since they announced their intentions for a bitcoin ETF. Of all the issuers with bitcoin ETF filings, BlackRock is the one name that's been all over the news and the one that the average investor will know is launching.

IBIT has to be a heavy favorite to be the over asset flow winner.

VanEck Bitcoin Trust (HODL)

Expense Ratio: 0.25%

Outlook: OK

VanEck is in the same position as Invesco and WisdomTree - kind of in that middle tier of issuers that will get enough assets to make it worth their while, but not enough to be one of the leaders. VanEck was one of the first ETF issuers to try to bring a bitcoin ETF to market, so there's some name recognition potential, but I don't see much of a case beyond that.

It's got perhaps the best ticker of the bunch here, but the lack of any fee waiver doesn't help its cause.

Franklin Bitcoin ETF (EZBC)

Expense Ratio: 0.29%

Outlook: Poor

I'm trying hard to find a path to success for Franklin's bitcoin ETF, but I'm just not finding one. The company is more of an old school asset manager that's probably better known for its mutual fund lineup than its ETF one. Of the bitcoin ETFs, EZBC probably comes with the least investor awareness. If investors don't know that exists, it's unlikely to gain much traction.

In 2017, Franklin launched a series of country ETFs all priced at 0.09% that were designed to be the low cost leader in the space. Some have enjoyed modest success, but the majority of them still have less than $100 million in assets. Franklin hasn't been able to break through on low cost. There's not much buzz. It doesn't seem like a fit within the rest of their lineup. There's no fee waiver. I'm just not seeing a real path to success here.

Hashdex Bitcoin ETF (DEFI)

Expense Ratio: 0.90%

Outlook: Poor

Like Bitwise, Hashdex is a crypto specialist and that should give them something of an advantage, but that fee is a killer. Among regular investors, they won't be nearly as well-known and several options that are more than half a percent cheaper give them better choices elsewhere.

However, I can see a number of crypto buyers choosing to go with Hashdex based on current relationships, so it's possible that it has more success than I think it will.

Grayscale Bitcoin Trust (GBTC)

Expense Ratio: 1.50%

Outlook: Very Good

Of all bitcoin ETF approvals, this one is the most interesting. GBTC is obviously converting from a closed-end trust, but it's a trust that has $27 billion in assets already. That's like starting a marathon at mile 20.

The big question is what kind of attrition will the fund experience. The expense ratio is egregious in the ETF world, but wanting to keep a 1.5% expense ratio (keep in mind that it was 2% pre-conversion) on a $27 billion asset base is at least understandable. I also think that a lot of money is invested in GBTC because it was the only bitcoin game in town. Bitcoin futures ETFs didn't really put a dent in it, but spot bitcoin ETFs could, especially coming from companies, such as BlackRock and Fidelity.

I don't see GBTC attracting a lot of net new money, if any at all, but it's a matter of how long can they hold on to what they have. They'll probably lose assets to other funds on this list, but it'll be the unquestioned largest revenue generator for a while.

Conclusion

We'll know pretty soon who the big winners are in terms of issuers, but the biggest winners have to be investors themselves.

BITO still has an expense ratio of 0.95% and a lot of people expected the spot bitcoin ETFs to come in at at least 0.50%. The fact that investors can get spot bitcoin exposure for as little as 0.20% with a short-term fee waiver on top of it is pretty incredible.