* There was a lot of anticipation in the markets for the launch of spot Bitcoin exchange traded funds in the United States. But with the price of Bitcoin itself coming under pressure, how is the market for these products shaking out? Joining us now to discuss, Bryan Armour, Director of Passive Strategies research For north America at Morningstar Research. Bryan, welcome to the program. * Yeah, thanks for having me. * Great to have you on as a guest-- a first time guest. Let's talk about the spot Bitcoin ETFs. They're fairly new. They've only been in the market for a couple of weeks. But we do have some information now under our belts in terms of investor interest. How is the market shaking out? * Yeah. So it's so far been a hit. And we had 11 different ETFs approved. One had previously existed as a trust in GBTC from Grayscale, and Hashdex is yet to convert. But the new nine have really taken off. And first six trading days, they traded 250 million shares. * And for Ishares and Fidelity ETFs, which have sort of gotten out to the front of the pack, they're trading over 10 million shares per day. Spreads are already down to $0.01 wide, and both have broken through to almost $1.5 billion in assets. * So that would suggest that liquidity is there. Is it important as we try, and it's still early days, as we're saying, to try to figure out the market appetite for these spot Bitcoin ETFs, that we take that away from the actual price of Bitcoin? Because Bitcoin, I think, is down about 20% since these launched. * There was a runup into this launch, but, of course, this is what they track-- they track the price of Bitcoin. But we start talking about fund flows, that seems to be the place where we want to keep an eye on. * Yeah. When we look at flows, we're really looking for where investors are putting their dollars to work. And so there's a huge headwind that is so far, Bitcoin has not performed well since these launched, and down 15%, 20% since the 11th when they first launched. But overall, in terms of the actual structure of the products, it's a better structure than what currently exists in the market in the US-- I know we're late to the party, but in terms of futures-based Bitcoin ETFs or grantor trusts. * So it's good in terms of accessibility. But obviously, you don't want to get too comfortable. Just because it's better than what currently exists, it still, obviously, is exposed to the price of Bitcoin. * Now, when I take a look at the fund flows so far, and the bit of information we do have that the issuers are putting out, I think this might be related, and you can correct me if I'm wrong, to some of the fee wars we've seen as well. Money seems to be moving out of some of these spot Bitcoin ETFs into others. And we know that the fee war kicked off, I think, even before some of them were listed. * Yeah. It's been a really interesting take on game theory. And, really, all these ETFs hold the same thing-- that is physical Bitcoin, if it can be physical. And so, really, the fee was one of the best marketing techniques for these fund providers. And so what we saw was as they were working with the SEC, they went through several different amendments of their filings. And slowly, they started trickling out what fees they were going to plan to charge, and then they started responding to one another and ended up being a fee war broke out. * And we saw fees drop from 79 basis points, as I believe it was the first fee that came out, all the way down to what ended up at 19 basis points, which is the lowest fee offering right now. But then on top of that, they're all waiving fees for the first six months, first year up to $1 billion. And so most of the ETFs are actually free to own right now. So it's been very highly competitive, but that ends up being a big win for investors. * Because investors, obviously, if you cut those fees down to zero for a certain amount of time, you're not paying those fees to get into the funds. In terms of the competitive landscape-- obviously, very competitive right off the hop-- what might we expect over the next several months as investors get used to these products? Still a lot of competition from 11 different issuers, basically try to attract investor money. * Yeah so I think right off the bat, you have Grayscale, the incumbent, being used as something of a trading tool by market makers. And this is the first time it's traded sort of near its net asset value in a while. And so we've seen a lot of investors selling out in that sense-- the competition sort of eating Grayscale's market position. * I expect that to continue. They're the only issuer with a fee of 1.5%, which is significantly different than the rest of the pack. Most are in that 19 to 30 basis point range. But on top of that, it's iShares Fidelity have really come out in front so far. * And then Bitwise and ARK are in that next tier. Invesco is starting to knock on that door. So it's going to be interesting how it all plays out. But overall, having all these come out together, having the existing trust and futures, and the underlying crypto market, underlying futures market, has really created a strong robust liquidity ecosystem for all these ETFs. So trading has been very strong. * You mentioned, Bryan, obviously, that there are other ways to play cryptocurrencies and Bitcoin before the spot Bitcoin ETFs-- the futures, the miners. But remind us, what actually happened a couple of weeks ago in terms of these spot Bitcoin ETFs? What are they? How do they work? * Yeah. So these just hold Bitcoin. And so there's a little complexity in terms of how they get access. The SEC still doesn't want any broker dealers actually touching Bitcoin themselves. So what they end up doing is authorized participants are only allowed to do cash, creates, and redeems. * They go through other brokers who go out to crypto exchanges to buy or sell Bitcoin as needed. So for the most part, it's all creations, other than Grayscale, where we've seen some redemptions. But compared to futures, they don't have to worry about rolling the futures contract each month and some of the inefficiencies there. Or when Grayscale's GBTC was a grantor trust, they don't have to worry about it acting more like a closed end fund where there wasn't ability to redeem, and so it ends up trading out like large premiums or discounts as a result. * OK. So, obviously, some of the attributes there that are different than the products that were available before. Still, what are some of the risks in investing in a spot Bitcoin ETF? * Yeah. No matter what, the risk of Bitcoin is sort of the primary concern. And that's because Bitcoin has moved significantly. We've had, compared to the US stock market, the standard deviation is over four times as high. Over the past five years, there have been four different drawdowns of 45% or more, despite the fact that it's performed very well overall over that period in total. * But the issue is it's untethered from a fundamental value. And it's really hard to price, it's hard to say what its value should be, why it should go up. And that's really the underlying concern for investors. So they should only invest in Bitcoin if they see value in doing so. Fear of missing out is not a very smart investment strategy.