Summary Bitcoin ETFs like WisdomTree Bitcoin Fund ETF are gaining interest, but BTCW has underperformed Bitcoin due to various fees and expenses. Despite BTCW's superior returns compared to other Bitcoin spot ETFs, it still lags behind direct BTC-USD holdings by nearly 10 percentage points. The fund's underperformance is attributable to custody fees and non-recurring expenses; this despite the sponsor fee waiver. I recommend selling BTCW and investing directly in BTC-USD, considering the ongoing expense drag on NAV growth. With Bitcoin ( BTC-USD ) staying stubbornly under the major psychological milestone of $100k for the past several weeks alongside rising volatility since July (chart below), Bitcoin ETFs such as the WisdomTree Bitcoin Fund ETF ( BTCW ) are gaining significant interest amongst investors. As a side note, although the $100k price barrier was broken several times in the last week, BTC-USD remains under that level for now, and volatility is on the rise again. CVI.Finance This higher level of interest from investors can be seen from the ETF's sudden AUM surge that began in a strong way in early August, with a short period of consolidation and then a sharp rise toward the $380 million-plus mark where it now stands. Data by YCharts This coincided with the early August rally for BTC-USD when it briefly breached the $62k level. That rally failed to last, as seen below, and BTC began a brief consolidation phase. TradingView Bitcoin did breach that level again toward the end of August, but by the beginning of September, the crypto was back at $54k. The following rally took it over $65k, and despite the increasing volatility, BTC kept creating new highs until the presidential election results were out. From the pre-election-results level of near $68k, Bitcoin underwent a sharp move up, and over the next two weeks it zoomed toward the all-important $100k level that it has failed to break out of despite breaching it multiple times in the past few days alone. SA Meanwhile, BTCW was doing a parallel dance of its own. Over the period since its inception on January 11, 2024, the fund managed to give investors superior returns over most other Bitcoin spot ETFs such as the iShares Bitcoin Trust ETF ( IBIT ), the Bitwise Bitcoin ETF ( BITB ), the ProShares Bitcoin Strategy ETF ( BITO ), and the VanEck Bitcoin ETF ( HODL ). The only ETF that outperformed BTCW is the much older and larger Grayscale Bitcoin Trust ETF ( GBTC ). SA Now for the Bad News: Issues with BTCW Until now, this looks like a solid play on BTC-USD. The comparably lower return (compared to a direct BTC-USD holding) could theoretically have been attributed to the 0.25% expense ratio - which is incidentally among the lowest ERs for Bitcoin spot ETFs (GBTC charges 1.50%) - but it just so happens that the sponsor fee was officially waived until July 11, 2024. The waiver was renewed since then (see quote below), and the sponsor waived another $5,700 for the three months ended September 30, 2024. So, that doesn't explain why the fund has underperformed the benchmark by nearly 10 percentage points. Another possible explanation could be distributions, but that doesn't apply here because BTCW doesn't pay a dividend. The objective of the fund is purely focused on capital appreciation. If there were a capital gains return via distributions, it would explain the difference. Yet another hypothetical explanation for BTCW's underperformance might have been realized losses on options contracts. However, that's ruled out as well since the ETF doesn't currently offer options trading. The custody fees that WisdomTree needs to pay its Bitcoin Custodian, Coinbase Custody Trust Company LLC, is another possible explanation for the underperformance. These fees aren't as transparent as I'd like , and they could, theoretically, account for at least a portion of the underperformance. One other aspect that's not quite transparent is the sponsor fee. Although this has been waived until July 11, 2025 , with an auto-renewal clause covering subsequent years, that's not the only fee; it's merely the recurring fee. Other, non-recurring fees are listed as : "including but not limited to, taxes and governmental charges, any applicable brokerage commissions, financing charges or fees, bitcoin network fees and similar transaction fees, expenses and costs of any extraordinary services performed by the Sponsor (or any other service provider) on behalf of the Trust to protect the Trust or the interests of Shareholders (including, for example, in connection with any fork of the bitcoin blockchain), any indemnification of the Cash Custodian, Bitcoin Custodian, Trust Administrator or other agents, service providers or counterparties of the Trust and extraordinary legal fees and expenses, including any legal fees and expenses incurred in connection with litigation, regulatory enforcement or investigation matters." That could explain, in part, the apparent NAV erosion, and if we dig into the numbers in their quarterly report for the period ended September 30, 2024, we see that net expenses - after the total sponsor fee waiver of $75,748 for the nine months ended September 30, 2024 - were $93,856, all of which was incurred in Q3. 10-Q Report for Q3 However, that was offset by realized and unrealized gains on the trust's Bitcoin investments; remember, any expenses and liabilities over and above the waived sponsor fee can only be covered by selling Bitcoin. That offset allowed the fund to report a net asset increase of $18.4 million for the nine-month period. 10-Q Report for Q3 If not for those additional expenses (and, more importantly, the fee waiver), the ETF would have performed even worse against BTC-USD. I suspect that's the reason the waiver was extended, which means the sponsor is absorbing at least some of the NAV loss that the ETF incurred over the past eight months since inception. Closing Thoughts and My Recommendation for BTCW To me, that's not an optimal investment strategy. Honestly, it makes more sense to hold BTC-USD directly rather than to invest in a fund that piggybacks on BTC price action without tracking it accurately, and worse, one that would significantly underperform the cryptocurrency it tracks should there be a reversal in momentum. SA For Q4, we shouldn't be seeing that same issue because of how strongly BTC has moved between October 1 and now, but those expenses and liabilities will still continue to create a drag on NAV growth, which, in turn, impacts the market price of BTCW against a pureplay Bitcoin holding. That's validated by Q3's price performance. BTCW didn't report any share redemptions in that quarter, so it actually performed slightly better than BTC over that period despite the expense/liability load. SA Unfortunately, since the fund isn't even a year old at this time, we're unable to ascertain whether or not this underperformance due to expenses is an established pattern. As far as I can see, however, that's going to be the case moving forward. I'll reiterate here that this is the reason I suspect the continuation of the sponsor fee waiver is key to the fund's performance, which is not an ideal set up. As such, I'd recommend a Sell - take whatever profits you've made from BTCW off the table and invest directly in BTC-USD. Please consult with a qualified tax advisor on the best way to do this in a tax-advantaged account. I do realize that it sounds contrarian to have a Sell recommendation on an ETF with a +100% return since inception, but when you get into the nuts and bolts of it, as we did in this article, it's clear that this type of fund doesn't work well as a replacement for a direct Bitcoin holding. That's just my opinion, so please feel free to hold your BTCW position or even add to it based on your own assessment - of not only your Bitcoin price projections in 2025, but also of the way BTCW works.
