IBIT Stands Out Among Spot Bitcoin ETFs, But Caution Warranted

Summary The iShares Bitcoin Trust ETF features strong volume and net-flow trends. The fund has the lowest annual cost to own among all spot Bitcoin ETFs and has surpassed $100 million in assets under management. Bitcoin's market cap remains a fraction of gold's, but as wealth transfers to the next generation, Bitcoin may gain favor. I am cautious on near-term Bitcoin price action, though assert that IBIT is a solid choice for crypto investors long-term. Hello, world. Bitcoin ETFs finally launched last week after anticipation and even an apparent hack of the SEC's X account. Nevertheless, cryptocurrency enthusiasts and intrigued investors alike now have 11 spot Bitcoin ETFs from which to choose. After the first few two days of trading, the iShares Bitcoin Trust ETF ( IBIT ) stands out as the volume and net-flow winner (not counting the Grayscale Bitcoin Trust ((BTC)) ETF ( GBTC ) which has been available to trade for many years). I have a hold rating on IBIT. I see it and the Fidelity Wise Origin Bitcoin Fund Beneficial Interest ( FBTC ) as being the future leaders in the space based on early volume trends and their respective expense ratios compared to other ETFs. Given the fervor around the ETFs' approval by the SEC and in the wake of a steep advance in crypto prices in the last several months, a period of consolidation to cool the euphoria would make sense. IBIT Leads In Spot Bitcoin ETF Flows Eric Balchunas, Bloomberg SEC X Hack, Spot Bitcoin ETFs Later Approved X For background, IBIT enables investors to access Bitcoin, the world's leading cryptocurrency, within a traditional brokerage account, according to iShares . The issuer notes that the ETF wrapper eases investors' burdens both with respect to the high trading costs of buying physical Bitcoin and tax reporting. IBIT is a Blackrock product, the world's largest asset manager. According to Bloomberg, IBIT will soon feature the lowest annual cost to own of all the spot Bitcoin ETFs. The fund's 0.20% expense ratio will be four basis points under the second-cheapest Bitcoin fund. I encourage investors to also monitor trends in the bid/ask spread among all ETFs - while you might save a few basis points in a particular fund, if there is a wide gap between the bid price and ask price, then active investors and daytraders may be better off simply choosing the ETF with the most favorable liquidity metrics. Spot Bitcoin ETF Tickers & Fees Bloomberg Digging deeper into IBIT, Blackrock has waived a portion of the sponsor's fee for the first 12 months. In effect, the expense ratio of IBIT will be just 0.12% for the first $5 billion in the fund's assets over the next 12 months. The 0.25% annual expense ratio is expected to commence come January 2025. As of January 12, 2024, IBIT has already surpassed $100 million in assets under management and the average daily trading volume is high at more than 30 million shares so far (though there is a limited history). The ETF's premium to NAV is modest at just 0.16% - and that is encouraging considering the high amount of natural buying pressure that's seen when a hot ETF in a new asset class is launched. Moreover, the median bid/ask spread is just seven basis points, according to iShares as of January 12, 2024. I expect that spread to narrow further as ETF buying and selling pressure comes in better alignment. IBIT Key Metrics iShares IBIT holds nearly $500 million in physical Bitcoin, making it (and the other 10 spot Bitcoin ETFs), different from funds linked to BTC futures. The ETF wrapper offers credibility to Bitcoin as an asset class, particularly for the investment advisory community. RIAs and other money managers can now invest in highly liquid and low-cost products, such as IBIT, with relative compliance and tax-reporting ease. Consider that Bitcoin's current market cap is currently $840 billion, while gold's global worth is estimated at slightly above $14 trillion. Bitcoin's Market Cap Remains a Fraction of Gold's In Gold We Trust As wealth begins to transfer from baby-boomer investors to the next generation, Bitcoin bulls assert that the market cap spread, currently more than $13 trillion, may decline in favor of Bitcoin. IBIT and other Bitcoin ETFs may be the primary methods by which institutional investors and the RIA channel allocate capital to crypto. What makes me reticent to issue a buy rating on IBIT today is that there was so much fanfare ahead of the SEC approval news. I think of the current situation as comparable to when a stock is added to the S&P 500 index. Data show that shares jump before the news, but once it is announced that the company will be included in the index, the stock goes on to underperform, on average. I have written about this trend before on newly minted SPX companies. It has also been fascinating to see the relative bid to Ether. The second-largest cryptocurrency soared above $2600 late last week while spot Bitcoin dropped back under $43,000 after spiking to just shy of $50,000 on last Thursday. For now, I would fade Bitcoin in favor of Ether based on this relative momentum trend. Moreover, Ether could catch some of the same tailwinds over the coming months if rumors are true that SEC-approved Ether ETFs launch sometime later this year. BTC-USD (Green) Underperforms ETH-USD (Orange) Recently TradingView The Technical Take While IBIT just recently debuted, let's inspect the chart of spot Bitcoin for clues on where the cryptocurrency may go from here. Notice in the chart below that spot Bitcoin paused at resistance just below the key $50,000 mark. Not only is that round number a psychologically important level, but it's also where BTC topped out in April 2022 before a move lower. The cryptocurrency eventually bottomed out under $16,000 in November 2022 around the Sam Bankman-Fried and FTX sagas. A new bull mark was then born, and Bitcoin met selling pressure just above $30,000. A consolidation period lasting about six months during the middle of last year ended with a strong upward thrust, partly driven by the expectation that the SEC would approve spot Bitcoin ETFs. The news finally arrived, but price action told a more cautious tale. Take a look at the RSI momentum indicator at the top of the graph - momentum printed a bearish divergence compared to price. BTC now tests its rising 50-day moving average while the long-term 200-day moving average is way down at $33,000. Could spot Bitcoin fall that far? It's possible, and it would be a place to consider buying IBIT in size based on where the technicals line up. On the upside, a rally through $50,000 on spot Bitcoin may lead to a quick jump into the mid-$50,000s based on a low amount of volume by price in the low $50,000s. Bitcoin: Momentum Trends Lower, $50k Resistance, $33k Support StockCharts.com The Bottom Line I have a hold rating on IBIT. I see it as the best crypto ETF right now given its low expense ratio, strong liquidity, and increasing size. Monitoring trends in its liquidity is important, and so too is simply gauging supply and demands technically. Following the high media exposure around the SEC approval news, a pullback or consolidation in spot Bitcoin would make sense today.