How issuers generate revenue from exchange traded funds is an easy-to-understand concept. It’s calculated by multiplying the expense ratio of the ETF in question into its assets under management.
So if ABC ETF has $1 billion in assets under management and an annual fee of 0. 10%, it’d likely be a money maker for the issue because it’d be generating annual revenue of $100 million, assuming no alterations to the expense ratio. In other words, it’s entirely possible for fee-conscious issues to wring profits from cheap index funds, provided those products accumulate enough assets.
For issuers, there’s a sweet spot between a fee that produces a noteworthy amount of revenue and one that isn’t off-putting to advisors and investors. What that percentage is fluid as various issuers have differing economies of scale, but one thing is becoming clear: in just 18 months, some issuers are raking in the dough with spot bitcoin ETFs.
Take the case of iShares Bitcoin Trust ETF (IBIT), which is the largest fund in the category. Already known as one of the most successful launches in industry ETF, IBIT’s accolades extend beyond that impressive feat and appear to be growing undaunted.
Investigating IBIT’s Dominance
BlackRock (NYSE: BLK), the company behind the iShares ETFs, has a market value of $168. 68 billion (as of July 10), issues nearly 1,200 ETFs and had about $11. 5 trillion in assets under management at the end of the first quarter.
The latter two data points imply it’s difficult for any one iShares ETF to stand out from a revenue-generating perspective, but that’s exactly what IBIT is doing as highlighted in the chart below, courtesy of Bloomberg senior ETF analyst Eric Balchunas.
In plain English, out of 1,197 iShares ETFs, IBIT is already the number three revenue generator and it accomplished that feat in a mere 18 months. Add to that, the above chart was posted on X on July 3, but as of July 10, IBIT had $77. 49 billion in assets under management, meaning its top line contributions are increasing.
It’s fair to say that trend will continue because on July 10, bitcoin raced to an all-time high, taking out some important price points that were previously viewed as areas of resistance. That price appreciation is likely to stoke increased demand among clients and retail investors, potentially driving more inflows to ETFs like IBIT, thus increasing those funds’ revenue-generating potency.
Other IBIT Superlatives
Knowing that IBIT is the third-largest revenue driver among all iShares ETFs is undoubtedly impressive and the conversation could end there, but there’s more to the story, including what the fund’s $77. 49 billion in assets mean in bitcoin terms.
“New milestone, iShares Bitcoin ETF now holds over 700,000 BTC. 700,000 Did this in 18 months. Ridiculous,” Nate Geraci, president of The ETF Store, said on X on July 8.
Putting IBIT’s bitcoin ownership into context, the ETF owns more than triple the amount of bitcoin as the second-largest ETF in the category. Fun fact #2: IBIT owns about 100,000 more bitcoin than Strategy (MSTR), the biggest corporate holder of the cryptocurrency.
