tl;dr
Cathie Wood's Ark, a vocal supporter of cryptocurrencies, initially applied to offer ether ETFs in the U.S. but recently withdrew from the race. The decision is attributed to the intense competition to attract customers with low fees for crypto ETFs. Wood mentioned that their spot bitcoin ETF wasn't...
Cathie Wood's Ark, a vocal supporter of cryptocurrencies, initially applied to offer ether ETFs in the U.S. but recently withdrew from the race. The decision is attributed to the intense competition to attract customers with low fees for crypto ETFs.
Wood mentioned that their spot bitcoin ETF wasn't profitable due to its low fee of 0.21%. This fee is in line with competitors but significantly lower than non-crypto ETFs. Grayscale, with a 1.5% fee, lost assets to BlackRock, indicating the impact of fees.
Analysts believe Ark's departure may be linked to the low fees and intense fee competition. Despite the surprise, Ark's strong position in the industry and its other ether-related funds make its withdrawal unexpected. Ark Invest was unavailable for comment.
Cathie Wood's Ark has been a vocal proponent of cryptocurrencies for years and is among firms that already offer a spot bitcoin ETF. It joined with other firms applying to offer ether ETFs in the U.S. But then, within the past week, it bowed out without explaining why. Chalk it up to the intense battle to lure customers with low fees for crypto ETFs, according to experts.
During a fireside chat at CoinDesk's Consensus conference in Austin, Texas, last week, Wood said ARK's spot bitcoin ETF, launched earlier this year, wasn’t making the firm any money because it charges investors such a low fee: 0.21%. While that's comparable to what other bitcoin ETF issuers charge, it's significantly lower than what non-crypto ETFs typically charge.
“Perhaps this is a simple business decision,” said Nate Geraci, president of the ETF Store. “If Ark 21Shares Bitcoin ETF (ARKB) can eclipse $3.5 billion in less than five months and Ark can’t make any money, that’s obviously an issue.” ETF issuers charge investors a fee to compensate for managing the fund. Many investors seek to minimize that fee since it cuts into returns.
In the race to launch a spot bitcoin ETF, Grayscale set its fee significantly higher than its competitors, at 1.5%, which appears to be one of the main reasons why investors have pulled billions of dollars out of the fund and the fund lost its early lead, in terms of assets, to BlackRock.
“I don’t think anyone truly expected the fee war to get that aggressive before we even saw launches,” said James Seyffart, ETF analyst at Bloomberg Intelligence. Seyffart also believes that Ark made the decision based on the low fees.
“It’s possible that the partnership made a ton of sense, particularly with the demand for bitcoin ETFs,” he said. “But after the fees got so low right off the bat, there might simply not have been enough money from fees to go around for both firms, particularly on an Ethereum ETF if they are expecting less demand versus bitcoin ETFs.”
Only one wannabe issuer, Franklin Templeton, has revealed the fee for its fund so far, which it set at 0.19% according to a filing, the same amount it charges for the Franklin Bitcoin ETF.
Despite the low fee structure of the ETFs, Ark’s departure from the race came as a shock, given the asset manager’s strong footing in the industry and its offering of multiple other ether-related funds.
“This is a surprising move from my perspective,” said Geraci. “From a longer-term branding perspective, I’m surprised Ark wouldn’t find value in being involved in the spot ether ETF category. Ark has been much more forward-thinking around crypto than many of their competitors, so it’s odd to see them sit this one out.”
A representative for Ark Invest could not be reached for comment.
CORRECTION (June 6, 2024, 15:48 UTC): Corrects to remove reference to Ark being the first to apply for an ether ETF.
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