Less than a month after the debut of spot Bitcoin exchange-traded funds, the asset managers offering the investment vehicles appear to be seeking ways to bolster their own profitability.
Valkyrie Investments said Thursday that it’s retaining BitGo as a second custodian to help safeguard customer assets. Coinbase currently dominates the custody role for Bitcoin ETFs, supporting eight out of the 10 issuers, including for the roughly $113 million Valkyrie Bitcoin Fund, which trades under the BRRR ticker.
“We think it’s prudent to have multiple options and to make sure we are mitigating risk in a proper way on behalf of our clients,” Steven McClurg, chief investment officer of Valkyrie, said in an interview.
In addition to reducing counterparty risk, multiple custodian relationships could make it easier for issuers to potentially pressure custodians on fees down the road to improve profitability. The funds embarked on a fee cutting war just before the Jan. 11 launches, with seven waving the customer expense during an introductory period.
While not disclosed, custody rates typically range from 10 basis points for the largest clients to 50 basis points for the smaller ones, industry officials say. Rates also differ depending on whether the customers use any other services such as trading. Customers signing up for bundles of services can often get better terms.
“The ETFs will compete on price, and one of the key inputs to the price is the cost of custody platforms as well as spread in trading,” said Gavin Michael, chief executive officer of Bakkt Holdings Inc.
Bakkt, which offers custody and trading of digital assets, has been in talks with several Bitcoin ETF managers. “There’s a heavy price war going on, and the way we price aggressively around our offering makes us very competitive,” Michael said.
BitGo is also talking with other spot Bitcoin ETF issuers, according to Adam Sporn, head of prime brokerage at BitGo. Officials at other custodians, such as Gemini, Anchorage Digital and Kraken, have told Bloomberg News they’re in talks with ETF providers to be a secondary custody provider as well.
“I would be surprised if most of them do not have multiple custodians over the next quarter,” Sporn said in an interview.
For custodians that are able to reach scale, even smaller fees could mean profits. The US spot Bitcoin ETFs have already attracted several billion dollars since their debut. Funds from BlackRock and Fidelity have attracted the most demand.
Kraken, which already provides indices for six out of the 11 approved spot Bitcoin ETFs via its CF Benchmarks subsidiary, will launch a new institutional custody product this quarter.
Alesia Haas, Coinbase’s chief financial officer, has said that even as Bitcoin ETF issuers add secondary custodians, she expects the firm to retain a significant portion of the assets.
“ETF issuers are coming to Coinbase Prime for trading and Coinbase Custody for storage, and those two things are already deeply integrated and have been for a while, so that we can have fast settlement and trading,” said Philip Martin, chief security officer at Coinbase.
A message from Advisor Perspectives and VettaFi: To learn more about this and other topics, check out our podcasts.
Bloomberg News provided this article. For more articles like this please visit
bloomberg.com.
More ETF Topics >
