Investors are waiting for any news of approval for a spot bitcoin ETF (BTC-USD) by the US Securities and Exchange Commission (SEC). But, if a positive decision does come through, the options as to where to invest may be overwhelming.
Bloomberg Intelligence ETF Research Analyst James Seyffart joins Yahoo Finance to give helpful insight for investors into where and how to navigate investing in bitcoin ETFs as investment firms prep to roll out offerings as soon as possible, including BlackRock (BLK) and Grayscale's Bitcoin Trust (GBTC).
"Risk-wise, it's any risk you would think of investing in bitcoin itself. If you don't feel comfortable holding bitcoin itself, you probably shouldn't consider holding these things just because it's a very volatile asset," Seyffart advises. "But, here is undisputed fact in that bitcoin added to a diversified portfolio, of 60/40, whether it's a 2% allocation, 5% allocation, it has drastically improved the performance and the sharp ratios of those portfolios."
For more expert insight and the latest market action, click here to watch this full episode of Yahoo Finance Live.
Editor's note: This article was written by Nicholas Jacobino.
Video Transcript
RACHELLE AKUFFO: Well, the Securities and Exchange is up against its Bitcoin ETF approvals deadline. And with approvals so imminent, it's important to understand what it means for the investor. So how should you be thinking about the new additions to this ETF space?
As part of our ETF report brought to you by Invesco QQQ, let's bring in James Seyffart, Bloomberg Intelligence Research analyst to discuss more. Thank you for joining us this morning. Obviously, a lot of buzz surrounding these Spot Bitcoin ETFs as we await approval here. But lay out what investors actually get out of this if they choose to invest in a Spot Bitcoin ETF.
JAMES SEYFFART: I mean Brad did a great job explaining everything from a high level. That's all it is. The way to think about this is, it's creating a bridge between the DeFi or crypto world, in this case, Bitcoin specifically, to the traditional financial world. So what they get out of it is they can get exposure to Bitcoin in a traditional brokerage account or if you're using an IRA or what have you to get exposure in this case, this is just going to be the same way you would buy another ETF.
Now, as you also said, if you never wanted Bitcoin and you never wanted to hold Bitcoin, this ETF wrapper isn't going to change anything about Bitcoin itself. It's just another way to provide and get exposure. And it's been exciting to watch over the last few months. We've been calling for this to happen. And we've had this deadline circled on our calendars for literally months. So I've been waiting for this day for a very, very, very long time.
RACHELLE AKUFFO: And we got a bit of a jump scare yesterday. But obviously, that was not the actual announcement. But as you look at-- as you compare some of these, obviously, you have a flurry coming in here, 10 or more coming in here.
But when you look at the fees, when you stack them up against each other, when you look at Grayscale Bitcoin Trust, you're looking at fees of about 1.5%, much higher than some of the other counterparts here. How should we be gauging which ones are best if you, say, a buy and hold investor versus someone who wouldn't mind perhaps hopping in and out of this?
JAMES SEYFFART: So I mean, right now, Grayscale's GBTC is the de facto leader. They've been operating as an over-the-counter trading trust that holds Bitcoin. It's been an inefficient vehicle to get exposure. But for a while, it was the only vehicle to get exposure in those traditional accounts, like I spoke about.
They can trade at-- it was trading at massive premiums initially, then it was trading at massive discounts, the underlying Bitcoin. So it wasn't tracking the price of Bitcoin. And that said, if it were an ETF today, it's not yet, it would be in the top 1% of ETFs by assets in the top 1% of ETFs by trading volume. So they have a massive head start here. They have about $30 billion in assets in that thing. So they don't feel the pressure or need to drop that fee.
I don't know exactly why they're leaving it so high, at 1.5%. It's been operating at 2%. They've been saying they were going to lower it. I thought they would lower it much more. But if you're looking for a buy and hold investment, obviously you're not going to jump in and just look at GBTC.
But if you're an institution or somebody who's looking to make a trade, GBTC at least initially and probably for the relatively long-term is going to be the most liquid vehicle. I mean, obviously we'll have to see how that plays out over the coming days. But we're expecting these things to list tomorrow.
But a good rule of thumb is, just look for a relatively cheap one. Some people are going to be focused on maybe they don't want BlackRock managing their Bitcoin exposure. Maybe they want to focus on an issuer that is more crypto-centric and Bitcoin-focused.
So there's going to be a lot of marketing, a lot of pushing here trying to jockey essentially and get assets and compete with each other. And the end investor, when all this jockeying is going on-- and we've seen this massive fee, where honestly, the last five or six days, we've seen massive drops in fees. We've condensed a year's to two years' worth of fee wars of these Wall Street firms competing with each other condensed into a matter of days. It's been absolutely fascinating to watch.
RACHELLE AKUFFO: And so as you also look at some of the key investors in this space, some of the big names that we saw in the S-1 filings, what are the standouts? And where are you seeing them really gravitate?
JAMES SEYFFART: I mean, there's a lot of firms involved in this process. So a lot of big name Wall Street firms are involved here that are being third parties for these ETFs, whether it's Bank of New York Mellon, State Street, JP Morgan, VERTU, Jane Street, they're all involved in this process.
But the filers in this case, there's 11 of them. I don't know if I can try to list all of them from memory. But essentially, we have-- you have Grayscale at the top. They are the first ones. But then you also have Bitwise. Ark is partnered with 21 shares. You have Fidelity, WisdomTree. Invesco is partnered with Galaxy; Valkyrie, BlackRock, VanEck, Franklin Templeton, Hashdex, which already has an ETF operating DeFi. They're unique in the sense that they are just trying to convert a futures fund to be holding spot. And then you also-- and that's all of it. That's 11 that we're expecting to launch tomorrow.
But there's been 14 filings. There's two more that could come to market after this. One is going to hold carbon credits. So it's going to be fascinating to watch. We've never had a situation here where this many ETFs are launching that are doing essentially the same exact thing as each other. So it's going to be fascinating to see who's able to eke out a victory here.
RACHELLE AKUFFO: And so with so many to pick from here, what are some of the risks, though, that people should keep in mind if they're thinking of investing in a Spot Bitcoin ETF?
JAMES SEYFFART: I mean, risk-wise, it's just any risk you would think of investing in Bitcoin itself. Like if you don't feel comfortable holding Bitcoin itself, you probably shouldn't consider holding these things just because it's a very volatile asset. But there is undisputed fact in that Bitcoin added to a diversified portfolio of at 60/40, whether it's a 2% allocation, 5% allocation, it has drastically improved the performance in the sharp ratios of those portfolios. That said, this thing goes through multiple 80% drawdowns. So those are the main risks you got to think of.
And all the other ones, for the most part, I would expect them to have similar risks as far as potential things being hacked. I think that's highly unlikely. These are storied institutions in many cases. And the people that they're partnered with on the custody side, namely Coinbase, Gemini, BitGo, and Fidelity is actually custodying its own assets for their ETF. So the risk on that side, you'll have to read the documents. But for the most part, I'd say you just need to understand what you're getting into when you're investing in this asset class. That's really what it comes down to.
RACHELLE AKUFFO: And certainly, should be a rule of thumb in general when you're investing. I appreciate you taking the time to join us. We'll be excited to see what happens tomorrow. James Seyffart, Bloomberg Intelligence Research analyst. Thank you for your time today.
JAMES SEYFFART: Thanks for having me.
