VanEck Bitcoin Trust ETF: Another Way To 'HODL' (BATS:HODL) (2024)

January 2023 has been a significant month for Bitcoin (BTC-USD) and for cryptocurrencies more broadly speaking. US-based investors now have simple and easy access to spot Bitcoin in a traditional investment account. In the past, investors who wanted BTC exposure in traditional investment accounts have been generally limited to closed end funds that can (and did) deviate wildly from net asset value. Short of that, investors could have also considered highly dilutive Bitcoin miners or stock in companies that have large BTC positions on corporate balance sheets like MicroStrategy (MSTR).

I've already provided readers with my preferred spot Bitcoin ETF choice that I hold in my personal investment accounts. Perhaps unsurprisingly, the market front ran the well-telegraphed spot ETF approvals and it turned out to be a "buy the rumor, sell the news" event. Frankly, now that we've had a substantial pullback from recent highs, I think it's a good time to start thinking about upping allocations.

In this article, we'll go over some details that are specific to the VanEck Bitcoin Trust ETF (BATS:HODL) that investors should consider. And we'll dive into Bitcoin's upcoming supply change dynamic to assess if it is indeed time to buy BTC.

ETF Comparison

When it comes to single-asset ETFs, fees are an important part of the equation. Compared to the full grouping of spot BTC ETFs that were approved in mid-January, HODL isn't among the cheapest by current fees. About half of these funds have introductory fee waivers to incentivize AUM growth. VanEck's fund is not one of them at 0.25% today:

Source: Into The Block, as of 1/24/24

However, when fee waivers inevitably run out on these funds, VanEck's rate will be one of the most competitive in the market with just two funds offering a cheaper fee. Given fees have become a bit of a race to the bottom, one of the other metrics to consider is the premium/discount rate to net asset value, or NAV:

We admittedly do not have a large amount of trading history on these funds but so far the only top 5 spot Bitcoin ETF by AUM (sans GBTC) that trades at a discount is the iShares Bitcoin Trust ETF. VanEck's fund is possibly the most realistically priced at just a 0.02% premium. This is about as close to fair value as this fund can be, and it's something that investors should be mindful of. In my view, a fund with a 5 basis point fee advantage is much less interesting if the premium to NAV is almost 0.6%.

Something else worth considering is VanEck's planned funding of Bitcoin core developers. In a blog post from early January, Jan van Eck detailed how and why the fund would support Bitcoin's development. It's not a stretch then to say that buying HODL indirectly supports the network's core development in addition to supporting the price of the underlying asset itself. I elaborated on this a bit more in my recent FBTC article already, so I won't dwell on it too much here other than to share what I said in my previous piece:

The concern if development funding starts coming from traditional financial institutions would be that funding can also come with an expectation of influence. To be clear, there is no indication that this funding is anything other than a no-strings-attached donation. But these are the types of things to consider if you view yourself as a Bitcoin purist who still wants to buy some in a tax-advantaged account. TradFi firms funding core development many not lead to the kind of outcomes some Bitcoiners would want for the network.

Depending on where you fall from a Bitcoin "purity" standpoint, funding core developers through ETF custodians may not actually be something that Bitcoiners want to do. But that's up to each individual person to decide for themselves. I'm merely sharing the information because it does theoretically make HODL more attractive or unattractive compared to funds that don't pay developers.

Bitcoin's Supply Story

As for the network itself, Bitcoin's numbers are still strong in a variety of different areas. The all-important hash rate has continued its surge higher over the last several years:

While this is positive for network security, it does have a negative impact on low-efficiency miners. This should not be news to anyone who has followed my work on Seeking Alpha, but there is a halving event coming in April. This will result in an overnight reduction of Bitcoin's block reward from 6.25 to 3.125 BTC each block. When this happens, miners earn less assuming both the fee market and network hash rate remain constant. But the byproduct of that is there is less supply for miners to sell from new coin issuance:

One of the ways to look at the miner dynamic is with the Puell Multiple. The calculation is fairly straightforward; it divides the US dollar-denominated value of new coin issuance each day and divides that figure by the 365 day moving average of daily coin issuance value. When the multiple is below 0.5, Bitcoin's issuance value is considered to be very low. It's at that point that BTC has proven to be a good buy in the past. The opposite is also true. When the Puell Multiple nears or eclipses 3.5, it has historically served as an indication that issuance value is too high and BTC is topping. As of January 22nd, that multiple is at 1.5. There is a long way to go before BTC should be near a top based on this metric.

Furthermore, most of the public miners lack significant HODL stacks to make up the difference. With the notable exceptions of Marathon Digital (MARA), Riot Platforms (RIOT), Hut 8 (HUT), CleanSpark (CLSK) and HIVE Digital Technologies (HIVE), the majority of these companies have less than 1k BTC to sell to pay the bills when issuance is cut in half. This means that provided there is stable demand for Bitcoin either directly or through ETFs, the price of BTC will almost have to go up because the supply for miners to sell simply won't exist after April's halving. And it is the miners who are perpetual sellers. The point is, the supply dynamic favors a higher BTC price very shortly.

Risks

I've made this point seemingly ad nauseam through the years, but the best way to own BTC in size is to hold it directly on chain in a controlled wallet. While there's very little doubt in my mind that base layer transaction fees will continue to price out small holders from using the network long term, I believe self-custody still reigns supreme over all other options if you have the means and technical prowess to do so. Custody introduces two things: third party risk and fees. Those storage fees may be small today, but the future is less certain.

Summary

I'm personally a bit conflicted on the VanEck Bitcoin Trust ETF. HODL gets high marks for one of the most humorous tickers. But aside from that, I can't see myself adding VanEck's offering to my personal account for a variety of reasons. I'd prefer to not have a traditional financial firm funding core developers with my capital, though I understand why others may feel differently about that.

I think you could argue it's a bit of a marketing play to justify not offering a fee waiver for the first six months like many of the other ETF providers. If you do like the idea of supporting core developers through the fund fee, Bitwise's product may be a better alternative as that company's fee post-waiver is 20% cheaper than VanEck's, yet Bitwise is paying double the percentage of the fee to core developers that VanEck has committed. Thus, AUM's being identical, Bitwise would be paying more. Of course, investors should also consider the NAV rate.

Ultimately, I expect the price of Bitcoin to appreciate from current levels over the next several months. Because of that, I think you could do a lot worse than buying HODL. But I personally like FBTC better and that's where I have my funds at the moment.

Mike Fay