What is Fidelity's FBTC spot bitcoin ETF?

The Fidelity Wise Origin Bitcoin BTC -1.36% Fund (FBTC) is a spot bitcoin ETF that tracks the price of bitcoin.

Fidelity filed for its spot bitcoin ETF in June 2023, shortly after BlackRock filed for one. The U.S. Securities and Exchange Commission approved its ETF, along with 10 others, on January 11, 2024.

Investors can buy into FBTC through existing brokerage accounts on the CBOE stock exchange.

What is a spot bitcoin ETF?

An ETF is a type of investment fund traded on stock exchanges. It typically holds assets such as stocks, commodities, or bonds and trades close to its net asset value (NAV) over the course of a trading day. ETFs allow investors to diversify their portfolios and gain exposure to various asset classes with relative ease. 

A spot bitcoin ETF holds bitcoin as its underlying asset. This allows investors to get exposure to the price movements of bitcoin without needing to buy and store the cryptocurrency, which can be complex and risky for investors to do.

Spot bitcoin ETFs are subject to regulatory oversight. This gives investors a sense of security and protection that may not be present when dealing with unregulated cryptocurrency exchanges. Regulatory oversight can help mitigate risks such as fraud, manipulation and operational issues.

What is FBTC's issuer Fidelity?

Fidelity Investments is a multinational financial services corporation based in Boston, Massachusetts. It is one of the largest asset managers in the world, offering a wide range of financial products and services to individual investors, businesses, financial advisors, and institutional clients. As of Dec. 31, 2023, it had $4.9 trillion in assets under management and a total of $12.6 trillion in assets under administration.

Founded in 1946, Fidelity operates a brokerage firm, manages a large family of mutual funds, provides fund distribution and investment advice, wealth management, life insurance, retirement services, and securities execution and clearance.

What fees does FBTC charge?

Fidelity's spot bitcoin ETF has a sponsor fee of 0.25%, which it previously lowered from its original planned fee of 0.39%. The fee is being waived until the end of July.

A sponsor fee is a payment imposed by the ETF issuer, in this case Fidelity, for managing and operating the fund. Ahead of the spot bitcoin ETF approvals, all the issuers were engaged in a race to the bottom, wanting to offer the lowest fees to attract the most capital.

How does Fidelity's ETF differ from other spot bitcoin ETFs?

Fidelity stands out among many spot bitcoin ETF providers — except for at least BlackRock —because of its brand recognition. This is likely why it has been the second most successful bitcoin ETF issuer after BlackRock.

FBTC's assets have risen much faster than other providers except BlackRock. In the first two months of its launch, it picked up over $7 billion of bitcoin.

FBTC has also seen higher trading volumes than most ETFs except for BlackRock and Grayscale. Two months after it launched, it had around 20% of the market's trading volume, according to The Block's Data Dashboard.

Fidelity is also offering competitive fees. This is similar to a few providers but contrasts with Grayscale, which has maintained a hefty 1.5% fee on its spot bitcoin ETF (which had been converted from the Grayscale Bitcoin Trust).

How does Fidelity custody its bitcoin?

What stands out about Fidelity from other spot bitcoin ETFs is that it elects to custody its own bitcoin through Fidelity Digital Assets. That means it manages the private keys for the wallets that store its bitcoin. This is instead of using a third-party custodian, such as Coinbase, to look after the bitcoin on its behalf.

This has some advantages. While many other ETFs are using Coinbase, Fidelity is helping to avoid a single point of failure. If all the ETFs held their bitcoin with one custodian and it was exploited, then all the ETFs could be at risk. Diversifying this risk helps avoid the risk of all ETFs losing their funds in one go.

But it does come with risks. By storing its own bitcoin, Fidelity is responsible for looking after billions of dollars worth of the cryptocurrency. This means that it needs to ensure high levels of safety for its private keys in order to keep these funds secure. However, Fidelity is not new to custody; it has been providing crypto custody services for multiple years.

Are Fidelity's Bitcoin addresses public?

Yes, though Fidelity will not say publicly that it is. Blockchain analytics platform Arkham Intelligence managed to find FBTC's public bitcoin addresses, although Fidelity has not confirmed this. The address likely shows the current amount of bitcoin that Fidelity is custodying for its own ETF.

It is possible to see when bitcoin is sent to and from the address. Anyone can also send bitcoin to the address, which can be seen on a block explorer.