Asset Managers Seek to Bolster Profitability of Bitcoin ETFs
Valkyrie Investments has announced that it will retain BitGo as a second custodian for its Bitcoin exchange-traded funds (ETFs) to safeguard customer assets. Currently, Coinbase dominates the custody role for Bitcoin ETFs, supporting eight out of the 10 issuers. Valkyrie’s move to have multiple custodian relationships not only reduces counterparty risk but also potentially allows issuers to negotiate lower fees in the future, improving profitability. The fee-cutting war that began just before the launch of Bitcoin ETFs on January 11 has seen seven issuers waive customer expenses during an introductory period.
Competition on Price and Custody Platforms
Custody rates for Bitcoin ETFs typically range from 10 basis points to 50 basis points, depending on the size of the client and whether they use additional services. Bakkt Holdings Inc., which offers custody and trading of digital assets, is in talks with several Bitcoin ETF managers and believes that the cost of custody platforms and trading spreads will be key factors in determining the price competitiveness of ETFs. BitGo is also discussing partnerships with other Bitcoin ETF issuers, while custodians such as Gemini, Anchorage Digital, and Kraken are exploring secondary custody provider options.
Potential Profits for Custodians
Even smaller fees could be profitable for custodians that can achieve scale. Since their debut, US spot Bitcoin ETFs have already attracted billions of dollars in assets, with BlackRock and Fidelity seeing the most demand. Kraken plans to launch a new institutional custody product this quarter, while Coinbase expects to retain a significant portion of assets despite ETF issuers adding secondary custodians. The integration between Coinbase Prime and Coinbase Custody allows for fast settlement and trading, making it an attractive option for ETF issuers.
Hot Take: Asset Managers Seek to Optimize Profitability of Bitcoin ETFs
The asset managers behind Bitcoin exchange-traded funds (ETFs) are taking steps to maximize their profitability. By retaining multiple custodians and negotiating lower fees, these managers aim to mitigate risk and improve their bottom line. With the fee-cutting war already underway, the cost of custody platforms and trading spreads will be crucial factors in determining the competitiveness of Bitcoin ETFs. Custodians that can achieve scale stand to profit even from smaller fees, as the demand for Bitcoin ETFs continues to grow. As the industry evolves, it remains to be seen which custodians will dominate this space and how they will adapt to meet the needs of ETF issuers.
By
By
By
By