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Unavoidable Bitcoin Spot ETF Hidden Fees: A Overview of BTC Investment Methods and Costs

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Unavoidable Bitcoin Spot ETF Hidden Fees: A Overview of BTC Investment Methods and Costs

The highly anticipated Bitcoin spot ETF has finally been successfully listed. Did you participate? How can one purchase the Bitcoin spot ETF? How are the fees calculated? How do the fees compare to other investment channels?

What are the fees included in ETFs?

ETFs evolved from mutual funds, so they are similar in nature to funds, but their trading channels are different from traditional funds. ETF stands for Exchange Traded Fund, which means that they are funds traded on an exchange, allowing investors to place orders through brokerage firms directly.

Similar to traditional funds, ETFs also incur fees. In the United States, these fees are bundled into an annualized fee rate charged to investors. These fees include:

  • Management fees: fees for professional fund managers to manage your investments
  • Custodial fees: fees paid to custodian banks for fund custody
  • Trading costs: costs incurred from buying and selling to adjust the investment portfolio
  • Other administrative expenses of operating the fund

ETFs, typically tracking indices or specific assets like the S&P 500 or gold, do not require active management by fund managers. Hence, their fees are generally much lower compared to traditional mutual funds. For example, the largest ETF by scale, SPY SPDR S&P 500 ETF, has an annualized fee of 0.0945%, much lower than ARK Innovation ETF's 0.75%.

How are ETF fees calculated?

ETFs charge investors an annualized fee rate, deducted internally. For example, if the internal fee is 0.4%, it means that 0.4% of the total assets will be deducted gradually over the course of a year. Since these fees are deducted from the fund's net asset value and reflected in the ETF's price, investors may find it challenging to notice.

Using iShares IBIT as an example, they offer a discount of 0.12% for the first 12 months or the first $5 billion, and then revert to 0.25%.

  • First 12 months or first $5 billion: daily charge of 0.12%/365 = 0.0003288%
  • Afterward: daily charge of 0.25%/365 = 0.0006849%

Every day, the fund's net asset value and performance already account for these fees.

Below is a list of fees for 11 approved Bitcoin spot ETFs. Excluding initial discounts, fees range from 0.2% to 1.5%.

What are the options for buying and selling Bitcoin? How are the fees calculated?

Other options for investing in Bitcoin include buying Bitcoin directly online, purchasing through Coinbase, or holding Bitcoin as an alternative investment like MicroStrategy. How are the fees calculated for these options? The relevant fee breakdown is as follows:

Note: The U.S. withholds a 30% tax on dividend income, which applies to both U.S. citizens and foreign investors. Overseas investors can apply for exemptions, but the process is complex. However, MicroStrategy has never distributed dividends in the past, and the largest gold spot ETF, GLD, has no dividend distribution record to date.

Bitcoin Spot ETFs

Huang Hou-ming, Deputy Director of the Securities and Futures Bureau of the FSC, stated in a meeting on the 11th that under the restrictions of fund management regulations, domestic fund companies in Taiwan are not allowed to issue Bitcoin ETFs. Selling overseas related funds without approval would also be illegal. Therefore, Taiwanese investors can currently only trade Bitcoin spot ETFs through overseas brokerages.

When trading ETFs, overseas brokerages charge investors transaction fees, although platforms like eToro and Robinhood advertise zero commission. Similar to all funds, ETFs incur invisible management fees, continuously deducted.

Income tax on ETF-related dividends and capital gains is transparent. Although Bitcoin spot ETFs may not distribute dividends, capital gains from overseas investments by Taiwanese individuals are subject to annual taxation.

Directly Buying and Selling Bitcoin Online

The main cost of buying and selling Bitcoin online is the Gas fee!

Buying and Selling on Coinbase

Coinbase stands out for its role as an exchange in personal Bitcoin trading. Despite foreign media highlighting Coinbase's higher fees compared to Bitcoin spot ETFs after their launch, Coinbase charges transaction fees similar to those of brokerage firms. Transaction fees incurred when buying and selling occur at the time of the trade, unlike ETF internal fees that are continuous. While platforms like eToro and Robinhood advertise zero commission, Coinbase charges 0.05% to 0.60% in fees, comparatively higher than brokerage transaction fees. Currently, Coinbase does not operate in Taiwan.

Multiple Bitcoin ETFs have lower fees than Coinbase. Spokesperson: No plans to reduce trading fees

Is MicroStrategy a good alternative choice?

MicroStrategy's founder, Michael Saylor, recently expressed delight over the launch of Bitcoin spot ETFs, likening them to IPOs.

As planned, Michael Saylor has been selling 5,000 shares of MicroStrategy stock daily from January 2 to April 25 to fund personal Bitcoin purchases.

MicroStrategy's founder, Michael Saylor, initiates daily stock selling plan to fund Bitcoin purchases

During a previous financial conference, MicroStrategy heavily promoted its stock, claiming that its holdings of Bitcoin offer advantages, suggesting that buying MicroStrategy is better than buying Bitcoin!

  • Easy trading - can be bought and sold with a stock account
  • No additional fees - no gas fees for online trading, or management fees for ETFs
  • Continuous Bitcoin accumulation - utilizing cash flow to continuously purchase Bitcoin
  • Smart leverage - can purchase Bitcoin through debt issuance
  • Downside protection - supported by MicroStrategy's core business in business intelligence
  • Risk management - Bitcoin's attachment to MicroStrategy, resembling a derivative product

Flying high with Bitcoin! What is MicroStrategy's Bitcoin strategy all about?

Why invest in Bitcoin spot ETFs?

After reviewing the comparisons above, you might have a question:

Why invest in Bitcoin spot ETFs? Aren't the fees higher the longer you hold them?

Let's explain this from the design perspective of ETFs. Most ETFs track indices or specific assets like the S&P 500 or gold. Since individuals find it challenging to purchase a basket of over a hundred stocks or face barriers to holding physical assets like gold and Bitcoin, ETFs are designed to offer general investors an "easy investment" option. This doesn't mean investors are not thoughtful; it simply indicates that this method is very accessible.

BlackRock's marketing campaign featured Jay Jacobs, the head of thematic ETFs in the U.S., explaining three major advantages of their Bitcoin spot ETF, including:

  • Accessibility through existing securities accounts
  • Convenience
  • High-quality product managed by BlackRock

Bloomberg ETF analyst Eric Balchunas also commented on this:

This is marketing to the affluent baby boomer generation. Calm demeanor, easy-to-understand cases, soft new-age music, suit without a tie... everything says, "It's okay, adults are here."

Isn't this the marketing style you like? Perhaps you are not BlackRock's target audience, but don't worry, there are multiple channels for investing in Bitcoin. Choose the one that suits you and invest cautiously!