Author: BEN STRACK, Blockworks; Translated by: Song Xue, Golden Finance

The proposed management fees for a planned Ethereum futures ETF could be a sign of a brewing crypto fund fee war, market watchers say.

But how this will affect the cost of a spot bitcoin ETF — and whether investors will care — remains to be seen, especially since the SEC has never allowed such a product to be launched.

Roundhill Investments disclosed in an Aug. 4 filing that its Ether Strategy ETF will charge a management fee of 19 basis points, or 0.19%.

The 0.19% fee is nearly one-sixth of what Volatility Shares plans to charge for its Ether Strategy ETF, which plans to launch a series of similar applications. Those proposed fees could change between now and potential product approvals.

The management fee represents a portion of the expense ratio, or the percentage of a fund's assets that goes toward paying the various costs of operating the fund.

Bloomberg Intelligence analysts Eric Balchunas and James Seyffart highlighted the Roundhill fee in tweets last week.

“The fee war has begun, and we’re two months away from launch,” Balchunas said. “The ETF terror dome is in effect.”

How this relates to a Bitcoin ETF

The proposed spot Bitcoin ETF under review by the SEC has not yet disclosed its expense ratio.

Matt Hougan, chief investment officer at potential spot bitcoin ETF issuer Bitwise, said in a webinar earlier this month that expense ratios for futures-based ETFs could be a foreshadowing of what spot bitcoin ETF issuers might charge.

The ProShares Bitcoin Strategy ETF (BITO) — the largest bitcoin futures ETF and the first to launch — has an expense ratio of 0.95%. The same is true for the Valkyrie Bitcoin Strategy ETF (BTF). VanEck’s Bitcoin Futures Fund (XBTF) is even cheaper, with an expense ratio of 0.66%.

Ric Edelman, founder of the Digital Asset Council for Financial Professionals (DACFP), said in a webinar with Hougan that he expects the expense ratio for a spot bitcoin ETF to be between 0.5% and 1.0%.

But Nate Geraci, president of The ETF Store, suggested in an Aug. 18 tweet that issuers of spot bitcoin ETFs may seek to beat Roundhill’s proposed 0.19% fee.

“We thought we were going to see less than 40 basis points, and it could end up being much lower than that,” Geraci added. “It’s going to be a brutal fee race.”

Dave Nadig, a financial futurist at VettaFi, said a 0.19% rate is cheap for an ETF focused on any alternative asset class.

Nadig believes that issuers of cryptocurrency futures products are likely to charge higher fees than spot products, noting the rollover costs associated with futures contracts.

“However, since a spot bitcoin ETF will largely be an access vehicle, I suspect volume will matter much more than expense ratios.”

Nadig said that if the SEC approved a single spot Bitcoin ETF on its own, then the expense ratio might not matter at all, while the head of digital asset research at Grayscale Investments and VanEck argued against that scenario.

But he added that expense ratios, as well as fund size (likely driven by institutions), would be more critical to the ETFs’ success if multiple ETFs were launched simultaneously.

“You could imagine a scenario where there’s a known start date and then various players quietly push their largest ETFs and trading partners and clients interested in crypto,” Nadig said. “In that case, volume matters, but expense ratios may be important.”