Comprehensive Guide to Fidelity’s FBTC Spot Bitcoin ETF

In June 2023, Fidelity applied for its spot in Bitcoin ETF, following closely on the heels of a similar submission by BlackRock. This application received approval from the U.S. Securities and Exchange Commission on January 11, 2024, alongside ten other similar products.

The FBTC is accessible to investors through conventional brokerage accounts via the CBOE stock exchange.

Defining a Spot Bitcoin ETF

An ETF (Exchange Traded Fund) is a diversified investment vehicle listed on stock exchanges, typically comprising a mix of stocks, commodities, or bonds. It is designed to mirror the performance of its underlying assets, trading at a value close to its net asset value throughout the trading day. ETFs offer a convenient method for investors to diversify their holdings and access a broad range of asset categories.

Specifically, a spot bitcoin ETF is backed by actual bitcoin, providing investors a pathway to participate in bitcoin’s price fluctuations without the complexities and risks associated with directly purchasing and securing the digital currency.

Such ETFs come under the scrutiny of regulatory bodies, offering an added layer of security and stability absent in the unregulated realms of cryptocurrency exchanges. This oversight is intended to reduce the risks of fraud, market manipulation, and operational failures.

About Fidelity, the Issuer of FBTC

Fidelity Investments, headquartered in Boston, Massachusetts, stands as one of the globe’s premier asset management firms, with a diverse portfolio of financial services for individual investors, corporations, financial advisors, and institutional clients. As of the end of 2023, Fidelity managed assets worth approximately $4.9 trillion, with its total assets under administration reaching around $12.6 trillion.

Since its inception in 1946, Fidelity has grown to encompass a brokerage service, a broad spectrum of mutual funds, and offerings in fund distribution, investment advisory, wealth management, life insurance, retirement solutions, and securities execution and clearance.

FBTC’s Fee Structure

The sponsor fee for Fidelity’s spot bitcoin ETF is set at 0.25%, a reduction from the initially proposed 0.39%. Fidelity charges this fee for the administration and management of the ETF. In the period leading up to the approval of spot bitcoin ETFs, issuers were competitively lowering their fees in an effort to attract significant investment capital.

Distinguishing Features of Fidelity’s Spot Bitcoin ETF from Competitors

Fidelity’s presence in the spot Bitcoin ETF arena is notably distinguished by its strong brand identity, setting it apart from most competitors, with BlackRock being a notable exception. This significant brand recognition has likely contributed to it becoming one of the most successful Bitcoin ETF issuers, second only to BlackRock.

In terms of asset growth, Fidelity’s ETF, FBTC, has experienced a rapid increase, securing over $7 billion in bitcoin within just the first two months following its introduction, a growth rate surpassed only by BlackRock.

Furthermore, FBTC has recorded higher transaction volumes than its majority counterparts, with the exception of BlackRock and Grayscale. Within two months post-launch, FBTC accounted for approximately 20% of the market’s transaction volume, as reported by The Block’s Data Dashboard.

Fidelity also offers competitive fee structures, which, while similar to several other providers, stands in contrast to Grayscale’s significantly higher fee of 1.5% for its spot bitcoin ETF.

Fidelity’s Approach to Bitcoin Custody

A distinctive aspect of Fidelity’s approach among spot bitcoin ETFs is its decision to directly custody the bitcoin, thereby managing the private keys of the wallets where the bitcoins are stored. This approach diverges from the common practice of relying on third-party custodians, such as Coinbase, to manage the assets.

This self-custody strategy presents certain benefits. For instance, it mitigates the risk of a single point of failure that could arise if all ETFs were to entrust their bitcoin with a single custodian. This diversification of custody arrangements enhances the overall security of the assets.

However, this method carries its own set of risks. By holding the bitcoin itself, Fidelity assumes the responsibility of safeguarding a substantial value of cryptocurrency assets. This necessitates the implementation of robust security measures for the private keys to ensure asset protection. Nonetheless, Fidelity’s experience in providing crypto custody services over several years lends credibility to its capability in this domain.

Public Accessibility of Fidelity’s Bitcoin Addresses

Although not officially confirmed by Fidelity, it is understood that the Bitcoin addresses associated with FBTC are public. Arkham Intelligence, a blockchain analytics platform, has reportedly identified these addresses, which are believed to reflect the current volume of bitcoin under Fidelity’s custody for its ETF.