BlackRock and Fidelity Benefit from FOMO from Bitcoin ETF Mania

(Bloomberg) — Bitcoin's meteoric rise has produced record inflows into spot bitcoin ETFs — and bolstered investor preferences in this new asset class.

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BlackRock's iShares Bitcoin Trust (IBIT) and Fidelity Investments' Wise Origin Bitcoin Trust (FBTC) have accounted for 79% of total inflows into the “Newborn Nine” — the popular name for the group of new exchange-traded funds that invest directly in bitcoin — since The US Securities and Exchange Commission approved the assets on January 10.

Four of the remaining seven funds responded by cutting fees to below those charged by the two leaders, according to a Bloomberg analysis of data from the funds' websites. Valkyrie Investments cut its fee nearly in half to 0.25% from the 0.49% it charged just before SEC approval. Franklin Templeton is now offering an industry-low 0.19% after cutting its initial management fee by 10 basis points. Only Bitwise didn't make any changes.

Bitcoin has been on a tear this year, topping $63,000, as retail investors worried about missing out on new ETFs. As companies seek to maintain market share in the booming asset class, this bifurcation among fund managers looks set to continue.

“I expect more concentration among the big ETFs,” said Brian Armour, director of passive strategies research at Morningstar Inc. “But other funds are not going down without a fight.” The fee wars should continue, which will continue to pressure the leaders to maintain their edge.

Grayscale Investment has taken a different approach since Bitcoin Trust turned into an ETF, choosing to maintain higher management fees than its newer competitors. Bloomberg data showed that its fund (GBTC) has seen outflows of more than $8 billion since its launch.

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“The Grayscale team expected that GBTC's diverse shareholder base would engage in profit taking and deploy investment strategies that would impact the Trust's outflows, and we are pleased that outflows have stabilized over time,” a Grayscale spokesperson said in a statement. “We expect GBTC to continue to be an essential vehicle for transferring capital market risk relative to Bitcoin.”

Selling has declined broadly, with daily flows slowing to a daily average of $138 million in February from $403 million in January. Greyscale remains the largest fund, with $26 billion in assets under management, compared to BlackRock's $10 billion.

Meanwhile, there are signs that BlackRock is ahead of Fidelity to dominate the sector.

The New York-based firm's IBIT fund won $612 million in new investments on February 28, the largest single-day amount since its launch, and has absorbed the majority of new inflows over most of the past month.

The world's largest distribution network of fund managers likely provides investors with better liquidity than most competitors, said Todd Son, an exchange-traded fund and technical strategist at Strategas Securities.

“The flows and volumes into the BlackRock product reflect their commitment to this asset class,” Son said. “I like to believe that they realize that it is a 'new' part of an investment portfolio and that they are there to provide the access that investors might want.”

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