Fierce Competition Among Bitcoin ETFs May Cause Several Closures, Analysts Predict
Summary:
The heated competition to become the leading U.S. Bitcoin (BTC) exchange-traded fund (ETF) may result in many ETFs closing down due to unprofitability. Due to the ongoing fee war among ETFs, fewer newcomers are able to enter the sector. However, this fiercely competitive environment benefits investors with lower fees. Experts indicate that the existing ETFs would remain profitable only if they successfully manage billions in assets, which seems unlikely for most issuers. Currently, top firms BlackRock and Fidelity dominate the market with about $4 billion and $3.5 billion in assets under management respectively. Entrants to the field may need solid financial backing for survival and prosperous growth in the current market landscape.
The rigorous competition for the premier position as the United States' Bitcoin (BTC) exchange-traded fund (ETF) could lead to a closure of numerous existing ETFs due to the absence of profitability, say industry analysts. Economists suggest that the intense environment of ETF fee competition could have closed doors for smaller entrants. On a brighter note, this situation makes the investors the real beneficiaries as they face reduced fees.
Hector McNeil, co-CEO and founder of white-label ETF provider HANetf, revealed to Cointelegraph that many recently launched ETFs may likely never achieve profitability, as the associated costs can only be countered if they manage billions in assets - an unlikely scenario. The ten sanctioned Bitcoin ETFs have succeeded in drawing over $10 billion in asset management since their inception. However, major portions of these are held by economic giants BlackRock and Fidelity, who manage about $4 billion and $3.5 billion respectively.
McNeil predicts that a handful of these ETFs will sustain themselves and he expects some to close doors. In his view, those contemplating the launch of their own Bitcoin funds may reconsider their decision, calling the current market environment "a race to the bottom".
Global X curiously withdrew its Bitcoin ETF application in late January without giving any reasons. Other interested parties such as Pando, 7RCC, and Hashdex have remained quiet about their own plans. Meanwhile, existing Bitcoin ETFs continue to competitively decrease their fees in a bid to entice more investors.
Invesco and Galaxy decided to slash their ETF fee from 0.39% to 0.25% in late January. This brought them into alignment with the likes of BlackRock, Fidelity, Valkyrie, and VanEck, even though these funds had initially promised zero fees for the first half-year or until they reached $5 billion in managed assets.
Bloomberg ETF Analyst Henry Jim stated that respective newcomers to the arena face significant challenges in this battlefield dominated by giants. He pointed out that matching the current low fees would not bring in enough revenue for survival. Not reducing the fees would make garnering the necessary assets impossible.
In Jim's opinion, those considering entry might need to have a wealthy investor supporting them while they strategize the ETF rollout.
McNeil believes anyone late to the contention could discard such plans unless they bring something fresh or unique to the table. He encouraged such stakeholders to consider bidding in future offerings such as leveraged, covered call, or Ether (ETH) ETFs.
While ETF issuers continue engaging in fee competition, all three experts - McNeil, Jim, and Armour - echoed that the ETF consumers and investors ultimately reap the benefits.
Jim mentioned that market makers too stood to gain as they could access a market that is traditionally hard to penetrate, at lower costs. Market makers also appreciate the increased liquidity both in Bitcoin and ETF shares markets.
Armour highlighted that issuers with strong distribution networks capable of rapid scaling could also see benefits. He highlighted companies like BlackRock and Fidelity who currently lead in terms of assets managed.
Published At
2/14/2024 4:36:43 AM
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