Bitcoin ETFs Showdown: IBIT Edges Out ARKB

Summary I’m comparing Bitcoin ETFs, starting with ARK 21Shares Bitcoin ETF, against the iShares Bitcoin Trust ETF, the largest and most liquid option. ARKB offers one of the lowest expense ratios at 0.21%, making it cost-effective for investors. However, it has a higher bid/ask spread (0.05% vs. IBIT’s 0.02%). While both ETFs saw significant inflows during the Bitcoin bull run, IBIT’s AUM growth outpaced ARKB, in my view due to BlackRock’s strong Bitcoin advocacy and market dominance. ARKB diversifies its custodians, unlike most ETFs that rely solely on Coinbase. While this reduces risk, custodian reliance remains a critical concern for Bitcoin ETF investors. ARKB is an excellent choice for long-term Bitcoin exposure, but IBIT’s superior liquidity and narrower spreads make it the better overall option in this comparison, in my opinion. With what seems a Bitcoin bull run underway, many readers may wonder which ETF is best for gaining exposure to this asset class. To address this need, I’m collaborating with Seeking Alpha’s editors and their outreach program to write a short series evaluating Bitcoin ETFs. Bitcoin ETFs offer retail investors a simple, tax-efficient way to invest in Bitcoin through their brokerage accounts. In this “showdown” series, I’ll compare various Bitcoin ETFs against the iShares Bitcoin Trust ETF ( IBIT ), the largest and most liquid option on the market. If another ETF outperforms IBIT in these comparisons, I’ll reconsider my reference choice. Note that this series does not address whether now is the right time to invest in Bitcoin. I still view Bitcoin as a high-risk, asymmetric bet on its potential to mature into a global reserve asset. Investors uncertain about Bitcoin should first research its fundamentals and assess whether it aligns with their risk profile and objectives. For those interested, I recently shared my valuation model for Bitcoin and explained why I see it maturing into a global reserve asset rather than a global currency. ARKB ETF profile I am starting this series by analyzing the ARK 21Shares Bitcoin ETF ( ARKB ). All information about this fund is available in the ETF’s fact sheet and on the issuer’s dedicated webpage . ARK Invest, the issuer of the ARKB ETF, defines its fund as a way to “access to one of the leading digital assets without mastering arcane details of how to safely trade or store them”. While the use of “arcane” might seem a bit excessive, I agree that for most retail investors exposure to Bitcoin via an ETF is an overall better choice than having to set up their own wallets or relying on loosely regulated intermediaries. The ETF seeks to track the performance of Bitcoin, and more precisely that of the CME CF Bitcoin Reference Rate – New York Variant. This index produces a once a day price for Bitcoin aggregating multiple trade data from different cryptocurrency exchanges. Using an index for the price of Bitcoin is a common practice among Bitcoin ETFs. Bitcoin prices expressed in USD can vary significantly between exchanges and sometimes even from country to country (see the “ Kimchi premium ”, referring to how Bitcoin tends to be more expensive in South Korea than in other markets). Because of this, it is important that Bitcoin funds use a clear and universal index, rather than relying on what their custodians might quote. BlackRock uses the same index as ARKB in its IBIT ETF. The ARKB Bitcoin ETF, like all Bitcoin and crypto ETFs, relies on custodians to manage its holdings. This means the Bitcoin purchased by the ETF is held by a separate custodian institution that operates as a distinct legal entity from the issuer. ARKB’s fact sheet exclusively mentions Coinbase, Inc. ( COIN ) as a custodian for this fund. However, several online sources mention that Anchorage Digital Bank has joined Coinbase as a custodian for ARKB in September of this year. I view this as a positive development, showing that the fund issuer is actively working to diversify custodians to reduce the risk connected to Bitcoin storage. ARK Invest appears to take custodian risks seriously, as highlighted in the following disclaimer for potential investors: Failure by the Trusts Bitcoin Custodian to exercise due care in the safekeeping of the Trusts bitcoin could result in a loss to the Trust. Shareholders cannot be assured that the Bitcoin Custodian will maintain adequate insurance with respect to the Bitcoin held by the custodian on behalf of the Trust. I agree with ARK’s caution and consider the reliance on custodians to be the main risk of investing in Bitcoin through an ETF. Most Bitcoin ETFs use Coinbase as a custodian. While Coinbase is a reputable company and a strong choice, it still represents a single point of failure—a risk I will discuss in detail in the risk section later in this article. Key metrics at a glance The ARKB ETF has the following key metrics at the time of writing: Expense ratio of 0.21%, with no discount on fees for the first months of holding period, unlike other ETFs, including IBIT. Asset Under Management ((AUM)) of $4.74 Billion. Average Bid/Ask Spread of 0.05%. Average Daily Trading Volume of $103 Million. I believe these metrics are competitive within the Bitcoin ETF landscape. ARKB stands out with one of the lowest expense ratios at 0.21%, with only two other major Bitcoin ETFs offering lower fees. However, where ARKB falls short compared to IBIT, the market leader by AUM, is its higher spread—a result of its lower liquidity. I will go into details on this aspect in the next section. ARKB vs. IBIT ARKB vs. IBIT KPIs at a glance (Author’s elaboration of Seeking Alpha and ETF.com data) The table above compares key metrics for ARKB and IBIT ETFs, with ‘P3M’ representing changes over the past three months (August to November 2024). What stands out to me is the growth in AUM for both funds, reflecting significant inflows into Bitcoin during the last three months. IBIT’s AUM growth nearly doubled that of ARKB in this period, something I attribute to BlackRock’s strong advocacy for Bitcoin as a nascent asset class, positioning Blackrock itself as the most vocal mainstream institution supporting Bitcoin. Despite IBIT’s growth in AUM, ARKB also saw significant inflows in its ETFs – something, I believe, is due to the overall Bitcoin bull run and growth of Bitcoin as an asset class. In contrast, ARKB’s Average Daily Trading Volume ((ADTV)) has declined over the past three months. This in my view suggests investors are using ARKB primarily for long-term holding rather than frequent trading. This makes particularly sense by looking at the difference in Bid / Ask Spread between the two ETFs. The key difference between ARKB and IBIT lies indeed in their respective Average Bid/Ask Spread, with ARKB at 0.05%, significantly higher than IBIT’s 0.02%. Notably, IBIT’s spread decreased from 0.03% to 0.02% over the past three months—a reflection, in my view, of its increased liquidity driven by higher AUM and ADTV. In summary, IBIT is by far the most liquid of the two ETFs. In terms of expense ratio, the two ETFs are very close to each other, charging 0.21% and 0.25% respectively. In my view there is no significant difference between the two ETFs, when accounting for ARKB’s higher Spread, more than compensating for its lower fees. The two ETFs also have options available to trade, starting this month of November 2024. Conclusion: Who is this ETF for? To conclude the “showdown” of ARKB vs. IBIT, I have compiled the following table where I assign a qualitative score, reflecting all the considerations that I discussed in this article. ARKB vs. IBIT Qualitative Comparison (Author’s work) Overall, I view ARKB as an excellent product, particularly suited for investors seeking long-term Bitcoin exposure . However, the key area where ARKB falls short—and why I believe IBIT comes out ahead—is liquidity. ARKB’s significantly higher Average Spread outweighs, in my opinion, its lower expense ratio of 0.21% compared to IBIT’s 0.25%. As such, I believe IBIT is the superior ETFs between the two funds – by a short margin . Risks to investing in Bitcoin ETFs and ARKB Investing in Bitcoin remains, in my view, a highly speculative bet on the possibility this asset matures into a global reserve asset. I do personally like this bet, and this article did not discuss the investment thesis for Bitcoin. However, this remains the main risk that any investor considering ARKB (or any other Bitcoin ETF) should carefully consider in my opinion. Another significant risk of investing in Bitcoin ETFs is custodian risk. ETF issuers rely on custodians like Coinbase to manage their Bitcoin holdings. Should the custodian face fraudulent activity or a security breach, investors could lose part or all of their investment. The reliance on Coinbase by the majority of Bitcoin ETFs compounds this risk, in my view. While ARKB appears to diversify by using multiple custodians, this risk remains an important factor to consider.

Source: Seeking Alpha