BlackRock and Morgan Stanley square off in Bitcoin ETF ‘fee war’

Morgan Stanley just fired the opening shot in a Bitcoin exchange-traded fund “fee war” — and the bank set its sights directly on BlackRock’s back.

The Wall Street behemoth launched its Bitcoin ETF yesterday — to a strong $33 million debut — charging its clients just 0.14%. That undercuts most of its competitors, and sets up a battle for rock-bottom prices that could reshape the Bitcoin ETF market, market watchers say.

"By pricing their ETF at just 14 basis points, Morgan Stanley both eliminates any criticism over conflicts of interest and gives their advisers a strong argument for recommending its fund over any of the competitors," Ric Edelman, founder of the Digital Assets Council of Financial Professionals, told DL News.

He is not the only one to take notice.

"Fee wars are part of life in the Terrordome = hell for issuers, but heaven for investors," Eric Balchunas, analyst at Bloomberg Intelligence, tweeted.

Morgan Stanley adding a Bitcoin ETF to its $6.2 trillion brand adds another signal that financial institutions are warming up to crypto and blockchain technology.

It comes on the back of US President Donald Trump signing several pro-crypto executive orders and shepherding industry-friendly regulations into existence in order to make the US “the crypto capital of the planet.”

A $7 trillion advantage

Morgan Stanley’s edge isn’t price, however. It’s distribution.

The company has around 16,000 financial advisers that manage nearly $7 trillion in client assets. Until Wednesday this week, those advisers weren’t directly recommending Bitcoin. Now they can, and their clients are keen.

Just yesterday, investors ploughed $33 million into the fund. At that pace, Edelman projects, Morgan Stanley could pull in $7 billion in year one.

"This will likely lead to a price war as the other ETF providers are forced to respond," Edelman told DL News. "It will also force all the other brokerage firms to engage — to avoid losing clients and assets under management to Morgan Stanley."

That’s exactly what happened when Vanguard slashed index fund fees in the 1990s, triggering a decades-long race to zero that reshaped asset management. Bitcoin ETFs could follow the same script.

Three-fold impact

Edelman sees Morgan Stanley’s ETF hitting the market from three angles.

First, it will siphon assets from existing crypto ETFs. Investors already holding BlackRock, Fidelity, or Grayscale products may switch to save on fees — especially if their Morgan Stanley adviser recommends it.

Second, it will bring fresh capital into crypto. Many of Morgan Stanley’s clients have been sitting on the sidelines, waiting for their trusted brand to offer Bitcoin exposure in-house and at lower prices.

Third, it legitimises Bitcoin. When one of the nation’s largest brokerage firms issues its own fund — rather than just listing competitors' products — it sends a signal to the financial establishment that Bitcoin is here to stay.

"Combined, these will lead to broader adoption of crypto by investors nationwide," Edelman said.

Bitcoin to benefit

Even though lower fees don’t directly move Bitcoin’s price, Edelman argues that the fee war will indirectly help it rally.

"The fee war not only benefits investors, it demonstrates to them that there's a huge demand for this asset," he said. That social proof could push fence-sitters into finally allocating, which could drive the price of Bitcoin much higher.

In fact, Edelman already predicted that Bitcoin will topple $180,000 this year.

And when Morgan Stanley’s 16,000 advisers start recommending Bitcoin to clients sitting on $7 trillion, those flows add up fast.

“This flywheel is just starting to spin,” he said.

Pedro Solimano is a markets correspondent with DL News. Got a tip? Email him at psolimano@dlnews.com.