When you are trading Bitcoin, it isn’t enough to be looking for profitable trades. You need to make sure that your cost of doing business, your overhead, is kept as low as possible. The same will apply if, or when, spot Bitcoin ETFs are available in the USA for investing and trading. By overhead we are referring to fees and commissions but also the cost that comes from disadvantageous routing of your trades! Having an idea of how this will work upfront will help a lot of people avoid a lot of pain. When the time comes, be aware of your spot Bitcoin ETF trading overhead.
What Bitcoin ETFs Will Look Like
A Bitcoin ETF will be just one of thousands of exchange traded funds (ETFs) that people use to invest or trade in the stock market. Bloomberg writes about what to know about these funds. ETFs, specifically, are a $7 trillion business. They are part of an even larger group of investing products known as exchange traded products. Very commonly all members of this larger group are referred to as are inaccurately referred to as ETFs but there are important differences. Right now there are ETFs that track Bitcoin futures contracts. They work for trading Bitcoin but are not good investment vehicles.
There are many companies waiting to have their applications for spot Bitcoin ETFs approved. One of them is Grayscale which already has the Grayscale Bitcoin Trust. This vehicle allows folks to invest by proxy in Bitcoin but is known for its high fees in comparison to standard ETFs. They are applying to convert their trust to an ETF. What has Wall Street’s attention are Blackrock and others who are the biggest managers of ETFs. Blackrock is known for cutting fees to attract more customers and making up for their low fees with higher volume. This will be an important thing for spot Bitcoin ETF traders to be aware of in terms of trading overhead.
What Does It Cost to Trade Bitcoin Directly?
BitFlyer provides a table of costs of cryptocurrency trading. They charge 0.0004 BTC for withdrawing Bitcoin. Creating and maintaining an account is free. Their rates for traders depend on how much one traded over the prior 30 days. Trading less than $50,000 in Bitcoin value results in a charge of 0.10%. The cost goes down as trading volume goes up. Anyone who traded more than $500 million in Bitcoin value gets a 0.03% rate. BlackRock generally has the lowest fees for ETFs of about 0.11%.
How Do ETFs Compare to Direct Bitcoin Trading?
The best fees with ETFs come with passively managed funds as opposed to actively managed funds. A passive fund would be one that just tracks the price of Bitcoin. An active fund would repeatedly buy and sell a variety of equities, trying to time the market. Thus, a spot Bitcoin ETF should have negligible fees. How about the cost of buying and selling? Many online brokerages, which you would use to buy and sell Bitcoin, do not charge any fees or commissions. However, they make their money by routing orders to market makers who pay for these orders. This situation may result in a trader not paying any fees or commissions. But it can also result in getting a bad price when buying or selling Bitcoin, or both.