Unveiling the Hidden Costs of Bitcoin Spot ETF: A Comprehensive Overview of BTC Investment Methods and Expenses

The long-awaited Bitcoin spot ETF has finally been listed. Did you participate? How can you buy Bitcoin spot ETF? How are the fees calculated compared to other investment channels?

Contents:
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What fees are included in ETF fees?
How are ETF fees calculated?
What are the options for buying and selling Bitcoin? How are the fees calculated?
Bitcoin spot ETF
Buying and selling Bitcoin directly on the chain
Trading on Coinbase
Is MicroStrategy a good alternative?
Why invest in Bitcoin spot ETF?

ETFs evolved from funds, so they are similar in nature to funds, but the trading channels are different from regular funds because they are listed directly on the exchange (ETF stands for Exchange Traded Fund, which means funds traded on the exchange). Therefore, they can be traded directly through securities brokers.

The fees charged for traditional funds are also applicable to ETFs. In the United States, they are bundled into an annualized expense ratio and charged to investors. These fees include:
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Management fee: the cost of professional fund managers managing your portfolio
Custodial fee: the cost of custodians for fund custody services
Trading turnover cost: the cost generated by buying and selling to adjust the investment portfolio
Other administrative expenses of operating the fund

Since ETFs mostly track indices or specific assets (such as S&P 500 and gold) and do not require active trading by fund managers, the fees are much lower compared to traditional funds. For example, the largest ETF by scale, SPY (SPDR S&P 500 ETF), has an annual fee of 0.0945%, much lower than ARKK, the flagship fund of Ark Investment, which charges 0.75%.

ETFs charge investors an annualized expense ratio, and the fees are deducted internally. For example, if the internal expense ratio is 0.4%, it will gradually deduct a total of 0.4% of the total assets held for the entire year. Since it is deducted directly from the net asset value of the fund, it is reflected in the price of the ETF, making it difficult for ordinary investors to detect.

Taking IBIT from BlackRock as an example, there is a discount of 0.12% for the first 12 months or the first 5 billion US dollars, and it will be restored to 0.25% afterwards.

First 12 months or first 5 billion US dollars: daily charge of 0.12%/365=0.0003288%
Afterwards: daily charge of 0.25%/365=0.0006849%

We can see that the daily net asset value and trend of the fund are already after deducting these fees.

Below is a fee list for the 11 approved Bitcoin spot ETFs. If we don’t consider the initial discounts, the fees range from 0.2% to 1.5%.

Other options for investing in Bitcoin include buying Bitcoin directly on the chain, buying Bitcoin through Coinbase, and alternative holdings of Bitcoin through business intelligence company MicroStrategy. How are their fees calculated? Chain News has compiled a list of related fees as follows:

Note: The U.S. will withhold 30% tax on dividend income, which cannot be avoided by U.S. citizens or overseas investors (overseas investors can apply for exemption, but the process is complex). However, MicroStrategy has never distributed dividends in the past, and the largest gold spot ETF, GLD, also has no dividend distribution record to date.

Huang Hou-ming, Deputy Director of the Securities and Futures Bureau of the Financial Supervisory Commission, said at a meeting on the 11th that domestic mutual funds in Taiwan are not allowed to issue Bitcoin ETFs due to restricted fund management regulations, and it is also illegal to sell overseas related funds without approval. Therefore, Taiwanese investors can only buy and sell related Bitcoin spot ETFs through overseas brokers.

When buying and selling ETFs, overseas brokers will charge transaction fees to investors (although platforms like eToro and Robinhood claim to have zero transaction fees). Like all funds, ETFs charge invisible internal management fees, which are continuous.

The related dividend income and capital gains tax of investing in ETFs are also clear. Although for the case of gold spot ETFs, Bitcoin spot ETFs may not distribute dividends. The capital gains from overseas investments by Taiwanese residents will be included in the annual overseas income for taxation.

The biggest cost of buying and selling Bitcoin directly on the chain is the gas fee!

The reason Coinbase is specifically mentioned is because after the launch of the ETF, foreign media highlighted that Coinbase’s fees are higher than those of Bitcoin spot ETFs. However, in the option of buying and selling Bitcoin personally, Coinbase plays the role of an “exchange,” similar to the transaction fees charged by brokers. In fact, transaction fees are one-time fees incurred at the time of buying and selling, unlike the continuous fees deducted internally in ETFs. When buying and selling ETFs, brokers will also charge transaction fees to investors (although platforms like eToro and Robinhood claim to have zero transaction fees).

Interestingly, Coinbase spokesperson did not come out to clarify this point, but instead claimed that they have no plans to lower fees. Perhaps compared to the transaction fees of brokers, Coinbase’s fees ranging from 0.05% to 0.60% appear to be higher. Currently, Coinbase does not offer services in Taiwan.

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Multiple Bitcoin ETFs have lower fees than Coinbase, spokesperson: No plans to lower transaction fees
)

MicroStrategy founder Michael Saylor recently couldn’t hide his excitement about the launch of the Bitcoin spot ETF and referred to it as an IPO.

As planned, Michael Saylor started selling 5,000 shares of MicroStrategy stock every day from January 2nd to April 25th, using the proceeds to buy Bitcoin with confidence.

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MicroStrategy founder Michael Saylor starts daily stock selling plan to buy Bitcoin
)

In a previous financial report meeting, MicroStrategy also heavily promoted its own stock, claiming the following advantages of holding Bitcoin, so buying MicroStrategy is better than buying Bitcoin!

Easy to buy and sell (as long as you have a stock account)
No additional fees (gas fees are required for buying and selling on the chain, and management fees are required for ETFs)
Continuous increase in Bitcoin (continuously buying Bitcoin using its cash flow)
Smart leverage (using debt to buy Bitcoin)
Downside protection (supported by MicroStrategy’s business intelligence support)
Risk management (I think this refers to Bitcoin being attached to MicroStrategy, like a derivative product!)

(
Bitcoin takes me to fly! What is MicroStrategy’s Bitcoin strategy?
)

After reading the above comparisons, you may have a question: Why invest in Bitcoin spot ETF when the fees increase the longer you hold it?

I would like to explain this based on the initial design of ETFs. Most ETFs track indices or specific assets (such as S&P 500 and gold) because it is difficult for individuals to buy a basket of more than a hundred stocks themselves, and commodities like gold and Bitcoin have physical storage or entry threshold barriers. Therefore, the design of ETFs is originally intended for “brainless investment” for ordinary investors (not to say that investors are brainless! It just means that this method is really easy to get started).

There are multiple channels for investing in Bitcoin, and interested investors may choose the method that suits them and invest cautiously!

Coinbase
ETF fees
MicroStrategy
Bitcoin spot ETF

Further Reading
Matrixport: MicroStrategy stock price indicates that Bitcoin should be at 38K, SEC false news is a sell the news event
MicroStrategy founder Michael Saylor starts daily stock selling plan to buy Bitcoin