The approval of spot Bitcoin ETFs by the U.S. Securities and Exchange Commission (SEC) in January 2024 marked a pivotal moment in the evolution of digital asset investing. Among the wave of new entrants—collectively dubbed the “Newborn Nine”—Fidelity and BlackRock have emerged as dominant forces, collectively capturing 51% of the Bitcoin spot ETF market. Their rapid rise has steadily eroded Grayscale’s long-standing dominance, reshaping investor preferences through strategic advantages in custody, fees, liquidity, and client targeting.
This article provides a detailed comparison between Fidelity Wise Origin Bitcoin Trust (FBTC) and BlackRock iShares Bitcoin Trust (IBIT), focusing on four critical dimensions: Bitcoin custody, expense ratios, liquidity, and client typology. These factors not only explain their growing success but also highlight key considerations for investors navigating this evolving landscape.
Bitcoin Custody: Control vs. Convenience
One of the most significant differentiators between FBTC and IBIT lies in how each fund secures its underlying Bitcoin holdings.
Fidelity employs a self-custody model through its subsidiary, Fidelity Digital Assets℠. This approach uses an omnibus storage system combining hot and cold wallets, designed to balance security with operational efficiency. By retaining full control over private keys and infrastructure, Fidelity reinforces investor confidence in its ability to safeguard assets independently—without reliance on third parties.
In contrast, BlackRock has opted for third-party custody via Coinbase, a decision rooted in their pre-existing strategic partnership established in 2022. Through Coinbase Prime, BlackRock’s Aladdin platform already offered institutional clients access to crypto trading and custody services, making the integration seamless.
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While convenient, this arrangement raises concerns for crypto-savvy investors who prioritize decentralization and counterparty risk mitigation. Coinbase, despite being one of the largest exchanges, has faced regulatory scrutiny—including a $100 million penalty for past AML/KYC shortcomings and involvement in insider trading cases. For some, entrusting Bitcoin exposure to a centralized exchange introduces a single point of failure, undermining the ethos of digital asset ownership.
Thus, Fidelity’s self-custody framework may appeal more to long-term holders concerned about security and operational autonomy, while BlackRock’s model offers institutional familiarity at the cost of indirect exposure to exchange-related risks.
Expense Ratios: The Fee War Heats Up
Cost efficiency plays a crucial role in ETF adoption, especially in a competitive environment where small differences in fees can compound into significant savings over time.
Both FBTC and IBIT launched with aggressive pricing strategies:
- BlackRock introduced a 0% fee on assets up to $5 billion, then a 0.25% annual expense ratio beyond that threshold.
- Fidelity matched this with a temporary zero-fee period until July 31, 2024, after which it will also charge 0.25%, down from its originally proposed 0.39%.
This fee reduction reflects a broader industry trend: a race to the bottom among the Newborn Nine to attract capital inflows. Competitors like Franklin Templeton now offer even lower fees at 0.19%, while Valkyrie Investments cut its rate to 0.25% from 0.49%.
Meanwhile, Grayscale Bitcoin Trust (GBTC) entered the spot ETF era with a relatively high 2% fee, later reduced to 1.5% amid massive outflows. Despite remaining the largest by total assets under management (AUM), GBTC continues to lose ground due to its less competitive pricing structure.
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The fee dynamics suggest that Fidelity and BlackRock are positioning themselves as long-term leaders, leveraging scale and brand trust to offer sustainable low-cost access to Bitcoin—factors likely to accelerate further capital shifts away from higher-fee alternatives.
Liquidity: Smoother Trading, Better Execution
Liquidity is essential for ensuring that investors can enter or exit positions efficiently without causing sharp price swings.
According to a JPMorgan report, both IBIT and FBTC demonstrate superior liquidity compared to GBTC across two key metrics:
- Hui-Heubel Ratio: Measures market depth relative to trading volume.
- Average Absolute Deviation: Assesses how closely the ETF’s market price tracks its net asset value (NAV).
The analysis reveals that IBIT and FBTC exhibit tighter bid-ask spreads and smaller deviations from NAV, indicating stronger pricing efficiency and deeper market-making support.
Moreover, BlackRock and Fidelity benefit from established relationships with major market makers and institutional brokers, enhancing order book depth. Their ETFs attract diverse participant pools—including high-frequency traders, authorized participants, and institutional desks—contributing to robust secondary market activity.
Grayscale disputes these findings, arguing that dollar volume traded remains the best measure of liquidity—and under that metric, GBTC still leads. However, high volume alone doesn’t guarantee efficient pricing or ease of execution, especially during volatile periods.
As inflows continue into IBIT and FBTC and outflows persist from GBTC, the liquidity gap is expected to widen—further consolidating the advantage of the two new market leaders.
Client Typology: Retail vs. Institutional Focus
Another defining distinction lies in their target investor base.
Fidelity has long been synonymous with retail investing. With decades of experience offering brokerage accounts, retirement plans, mutual funds, and customer support through physical branches and digital platforms, Fidelity enjoys strong brand loyalty among individual investors. This reputation extends to FBTC, which has become a preferred entry point for both crypto-curious newcomers and experienced retail traders seeking regulated exposure to Bitcoin.
On the other hand, BlackRock, as the world’s largest asset manager with over $10 trillion in AUM (as of December 2023), primarily serves institutional clients such as pension funds, endowments, and sovereign wealth funds. Its iShares brand is deeply embedded in institutional portfolios globally, giving IBIT immediate credibility and distribution advantages within large financial organizations.
This divergence likely explains why IBIT has seen larger aggregate inflows despite FBTC’s popularity among retail users. While FBTC may have more individual accounts with smaller average investments, IBIT benefits from fewer but much larger institutional allocations.
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Frequently Asked Questions (FAQ)
Q: What is a spot Bitcoin ETF?
A: A spot Bitcoin ETF directly holds actual Bitcoin and tracks its real-time market price. Unlike futures-based ETFs, it provides investors with exposure to physical BTC without requiring them to buy or store cryptocurrency themselves.
Q: Which is safer—FBTC or IBIT?
A: From a custody standpoint, FBTC may be perceived as safer due to Fidelity’s self-custody model, reducing reliance on third parties like exchanges. However, both funds operate under SEC regulation and are considered secure options within traditional finance frameworks.
Q: Are there any hidden fees with these ETFs?
A: The primary cost is the expense ratio—0.25% annually after promotional periods end. There are no hidden fees, but investors should consider brokerage commissions and bid-ask spreads when trading shares.
Q: Can retail investors buy IBIT?
A: Yes, anyone with a brokerage account can purchase shares of IBIT or FBTC. However, IBIT’s structure and marketing are more aligned with institutional demand.
Q: Will Grayscale lose its top position?
A: Yes—many analysts predict that BlackRock will surpass Grayscale in AUM by 2025–2026, followed closely by Fidelity, due to superior liquidity, lower fees, and stronger investor trust.
Q: How do I choose between FBTC and IBIT?
A: Consider your investment style. If you're a retail investor seeking ease of access and trust in customer service, FBTC may suit you better. For larger-scale, institutionally backed exposure with potentially greater liquidity, IBIT could be preferable.
Core Keywords: Bitcoin spot ETF, Fidelity FBTC, BlackRock IBIT, ETF custody, expense ratio, ETF liquidity, institutional investors, retail investors.