With the recent approval of spot bitcoin ETFs by the SEC in January 2024, the market has quickly condensed into a competitive field primarily dominated by two funds: the iShares Bitcoin Trust ETF (IBIT) and the Fidelity Wise Origin Bitcoin Fund (FBTC). Both funds charge identical fees of 0.25% and have produced nearly parallel returns of -27% year-to-date, primarily influenced by the underlying performance of bitcoin itself.
The key differentiators between the two options lie in their custody models and liquidity features. FBTC maintains control over its bitcoin assets in-house through Fidelity Digital Assets, while IBIT utilizes Coinbase for its custody services, introducing a layer of indirect counterparty risk for investors. This distinction is particularly relevant in the context of how investors perceive and manage risk associated with third-party custodians.
In terms of liquidity, IBIT commands a significant advantage as it ranks as the largest spot bitcoin ETF both in terms of assets and daily trading volume. This dominance translates into tighter bid-ask spreads, deeper options markets, and lower costs of implementation for those looking to adjust their positions or employ strategies such as covered calls. Market makers are more inclined to offer competitive quotes for IBIT due to their ability to hedge positions quicker through its options market.
While FBTC is an adequate choice for investors focused on a long-only strategy, its options market is notably less developed compared to IBIT. This disparity indicates that traders looking for various tactics such as collars or calendar spreads will find more favorable conditions in IBIT’s offerings.
Performance-wise, both funds have mirrored bitcoin’s price trajectory almost exactly. Over the past year, IBIT reported a return of -41.72% and FBTC slightly less at -41.73%, matching the -37% decline of bitcoin itself. Year-to-date figures reflect only a slight difference, with IBIT down by 27.41% and FBTC by 27.39%. The minuscule variance in performance stems largely from fees and cash reserves rather than the underlying strategies of the funds.
For investors, the decision between IBIT and FBTC often comes down to existing brokerage relationships and trading behaviors. Active traders and institutions might prefer IBIT for its liquidity advantages and broader options capabilities, while long-term holders already within Fidelity’s ecosystem may opt for FBTC to simplify their management by combining custody and brokerage services.
The landscape could shift should either fund reduce its fees, creating an opportunity for more substantial competition. For now, IBIT leads in liquidity while FBTC excels in integrated custody solutions, ultimately making the choice a matter of personal preference, especially for those considering execution quality against custody structure.
