The introduction of Bitcoin Spot ETFs in January 2024 marked a significant milestone for investors. It was the moment when traditional finance legitimised the asset class. Instead of having to create an account with some obscure exchange, KYC, do a bank transfer and place your order through their platform, you could get Bitcoin exposure through the broker you’ve been using for years.
While the spot ETF does give you price exposure to Bitcoin, you are giving up the ability to custody the underlying asset and paying annual fees to hold it through this vehicle.
Despite the obvious downside of custodial exposure, it’s fast becoming the paper Bitcoin product for the masses, now holding a monumental â‚¿ 1,182 000 Bitcoin in total.
That’s a sizable chunk of tradable Bitcoin, and it makes sense why ETFs meet customers with disposable income to invest where they are and where they are comfortable. If you’ve already been set up with a traditional broker and want some exposure, the ETF is likely your first option due to its sheer ease of use.
Depending on the broker you’re using, you could have access to one or all of the spot ETFs available. If you do have more than one available, you might have noticed something peculiar.
These ETFs don’t always trade at identical prices or the globally set market of Bitcoin.
So what gives?
How does a spot ETF track the Bitcoin price if it doesn’t cost the same as Bitcoin does? Comparing ETF prices, you could pick up a share of 1 ETF for as little as $29.69, while some ETFs trade at $118.73 per share.
Where do these ETFs get their pricing, and why do these share prices seem arbitrary?
The Basics of ETF Pricing
The spot ETF issues shares corresponding to the number of Bitcoins it holds; an ETF could issue each share based on each Bitcoin it holds; for example, if it held 100 Bitcoins, it could issue 100 shares at the current price of Bitcoin.
But selling 100 shares into the market at $104 000 each isn’t exactly going to sell like hotcakes, so ETF issuers create shares backed by smaller amounts of Bitcoin.
Each share of ARKB, for instance, equals 0.001 Bitcoin or 100,000 satoshis.
These shares are available on traditional stock or exchanges, and prices generally reflect the currency’s prevailing market price.
Shares track the price of Bitcoin as closely as possible by rebalancing to match the performance of the CME CF Bitcoin Reference Rate. Spot ETFs create or remove shares to track BTC price minus fees. The difference in share prices among the ETFs depends on the fees and AUM.
The price of shares also depends on supply and demand, not only on the price of Bitcoin, and this provides opportunities to arbitrage the price. Some people buy for a few cents higher because they expect the price to rise significantly and don’t want to miss a good entry.
Ticker | Issuer | ETF Name | Price | Marketcap | Fee | AUM | 24h Volume |
IBIT | BlackRock | iShares Bitcoin Trust | $59.70 | $61.21B | 0.25% | $60.06B | $2.74B |
FBTC | Fidelity | Wise Origin Bitcoin Trust by Fidelity | $91.67 | $22.67B | 0.25% | $22.25B | $319.36M |
GBTC | Grayscale | Grayscale Bitcoin Trust | $83.17 | $21.68B | 1.50% | $20.97B | $213.56M |
ARKB | Ark/21 Shares | Ark/21 Shares Bitcoin Trust | $104.741 | $5.31B | 0.21% | $5.20B | $94.57M |
BITB | Bitwise | Bitwise Bitcoin ETP | $57.08 | $4.56B | 0.20% | $4.47B | $89.25M |
BTC | Grayscale | Grayscale Bitcoin Mini Trust | $46.51 | $4.34B | 0.15% | $4.19B | $51.48M |
HODL | VanEck | VanEck Bitcoin Trust | $118.73 | $1.54B | 0.25% | $1.51B | $33.54M |
BRRR | Valkyrie | Valkyrie Bitcoin Fund | $29.69 | $944.45M | 0.25% | $924.92M | $11.21M |
BTCO | Invesco/Galaxy | Invesco Galaxy Bitcoin ETF | $104.80 | $832.34M | 0.25% | $804.88M | $19.77M |
EZBC | Franklin Templeton | Franklin Bitcoin ETF | $60.76 | $817.31M | 0.19% | $800.27M | $17.86M |
BTCW | WisdomTree | WisdomTree Bitcoin Trust | $111.26 | $428.99M | 0.30% | $419.47M | $11.39M |
Key Factors Driving Price Differences
Exchange-traded funds (ETFs) are designed to track the price of an underlying asset, in this case, Bitcoin. Ideally, an ETF’s share price should closely mirror Bitcoin’s current market value.
However, several factors can cause variations in pricing across different Bitcoin Spot ETFs. These factors and the day-to-day operations of managing an ETF also affect the price you pay.
1. Tracking Methodology
Each Bitcoin Spot ETF employs slightly different strategies for holding and managing Bitcoin; some are public about their holdings, while others have yet to confirm their addresses on-chain.
Variations in:
- Custody arrangements
- Trading mechanisms
- Rebalancing frequencies
These nuanced differences can create subtle price variations between ETFs from providers like Blackrock, Fidelity, Grayscale and more.
2. Market Liquidity and Trading Volume
Not all Bitcoin Spot ETFs experience identical trading volumes. Lower liquidity can lead to:
- Wider bid-ask spreads
- More significant price deviations
- Greater sensitivity to large buy or sell orders
ETFs with higher trading volumes tend to have tighter pricing alignment with Bitcoin’s spot price.
3. Operational Costs and Management Fees
Each ETF has unique operational expenses that impact its pricing:
- Management fees range from 0.2% to 0.95%
- Different fee structures affect net asset value (NAV)
- Some providers have more efficient Bitcoin custody solutions
These cost variations contribute to slight pricing differences across ETFs.
4. Arbitrage and Market Dynamics
Professional traders and market makers constantly work to minimise price discrepancies through:
- Buying undervalued ETF shares
- Selling overvalued shares
- Exploiting small price differences
This arbitrage process helps normalise prices but doesn’t eliminate all variations instantaneously.
5. Timing of Bitcoin Holdings Valuation
ETFs calculate their Net Asset Value (NAV) at different moments:
- Some use real-time pricing
- Others might use end-of-day or delayed pricing mechanisms
These timing differences can create temporary price variations.
Implications for Investors
Unlike a Bitcoin UTXO, you cannot sell your shares to anyone; you have to find a broker willing to accept and redeem your shares for cash, and those brokers are looking to make money, too.
While Spot Bitcoin ETFs aim to mirror Bitcoin’s performance, and you can gain considerable price appreciation from your shares, there will always be a slight difference between an ETF share price and Bitcoin’s market value.
This tracking error can impact returns.
Spot Bitcoin ETFs rely on various third parties, such as custodians, brokers, and exchanges, and any issues with any of these parties could affect the ETF’s operations.
Understanding Price Variations
Investors should recognise that:
- Small price differences are normal
- Large, persistent discrepancies might signal underlying issues
- Compare expense ratios and tracking performance
Strategies for Navigating ETF Pricing
- Monitor multiple Bitcoin Spot ETFs
- Compare NAV calculations
- Consider overall fund performance beyond minor price variations
- Use limit orders to manage potential pricing risks
Technological and Regulatory Considerations
The Bitcoin Spot ETF market is relatively new. As the ecosystem matures, we can expect:
- More standardised pricing mechanisms
- Enhanced liquidity
- Improved arbitrage efficiency
Regulatory clarity and increased institutional involvement will likely reduce pricing inconsistencies over time.
Getting your share of Bitcoin
Bitcoin Spot ETF price variations are a natural consequence of complex market dynamics. While these differences might seem concerning, they’re typically minor and reflect the nuanced nature of this investment product.
ETFs appeal to those who are only interested in price exposure to Bitcoin and ultimately look to cash in at some point, while savvy investors will view these variations as opportunities for arbitrage or more advanced strategies like trading options.
If you don’t want to deal with the possible losses from share issuance rebalancing, limited liquidity options, or fees eroding your Bitcoin gains, the more attractive option is self-custody.
It will require the one-time purchase of a hardware wallet or two or three should you wish to do multi-sig, and a few hours of your time learn to custody on-chain.
Then, purchase your Bitcoin from a provider of your choice, either a KYC or non-KYC platform. Select the on-chain fees you’re willing to pay, which are totally in your control and enjoy hodling with no annual management fee.