Why BTCO Lags Peers—and Why It May Still Be a Buy

The Invesco Galaxy Bitcoin ETF (BTCO) has underperformed its peers in 2025, trailing in inflows, expense efficiency, and structural innovation. But beneath the surface, its struggles stem from identifiable structural challenges—and overlooked strengths that could position it for a comeback. Let's dissect the factors dragging BTCO down and why investors shouldn't write it off yet.

The Structural Disadvantage: Cash-Based Redemptions

BTCO's most glaring weakness is its reliance on cash-based redemptions, a legacy mechanism that contrasts sharply with the in-kind redemption systems proposed for rivals like the iShares Bitcoin Trust (IBIT) and Fidelity's FBTC.
Under BTCO's model, authorized participants (APs) must sell Bitcoin to generate cash for redemptions. This creates operational friction: APs face execution risk, liquidity costs, and potential price slippage. In contrast, in-kind redemptions allow APs to swap ETF shares directly for Bitcoin, eliminating the need to liquidate assets.

The SEC's delayed approval of in-kind redemptions—initially expected by early 2025—has left BTCO in a holding pattern. While BlackRock and VanEck's filings inch closer to approval, BTCO's structure remains anchored to a less efficient system. This regulatory lag is a key drag on its competitiveness.

Regulatory Uncertainty and Cost Pressures

BTCO's expense ratio of 0.39% (now temporarily reduced to 0.25% via fee waivers) places it at a disadvantage against peers.
While Invesco's fee waivers are a tactical move to attract investors, they're not permanent. Competitors like Fidelity's FBTC, with its 0.25% fixed fee, offer a more stable cost structure. Meanwhile, Grayscale's transition of its GBTC into an ETF threatens to further erode BTCO's market share, especially if it adopts lower fees or in-kind mechanics.

The Overlooked Strengths: Institutional Custody and Bitcoin's Fundamentals

Despite these headwinds, BTCO has two underappreciated advantages:
1. Institutional-Grade Custody: BTCO's partnership with Coinbase Prime ensures top-tier security for its Bitcoin holdings. This is a critical selling point for institutional investors wary of custody risks, even if they're drawn to cheaper ETFs.
2. Fee Waivers as a Growth Lever: The temporary reduction to 0.25% (or 0% on the first $5B in assets) makes BTCO cost-competitive in the short term. This could help it attract capital as investors await regulatory clarity on in-kind redemptions.

Bitcoin's Growth Drivers: A Long-Term Tailwind

BTCO's fate is ultimately tied to Bitcoin's adoption. Corporate treasury allocations—like those by GameStop and KindlyMD—highlight Bitcoin's role as a store of value.
As institutional demand grows, BTCO's direct exposure to physical Bitcoin (via the Lukka Prime Reference Rate) becomes a strength. Its transition to in-kind redemptions, once approved, could flip its structural disadvantage into an advantage overnight.

Investment Thesis: Buy the Dip, Wait for Structural Shifts

BTCO's underperformance in 2025 is a symptom of its structural delays, not a reflection of Bitcoin's potential. For investors with a multi-year horizon, the ETF's strengths—lower costs temporarily, institutional custody, and direct Bitcoin exposure—make it a candidate for a strategic position.

Action Items:
- Hold: If you own BTCO, stay patient. Regulatory approvals for in-kind redemptions could unlock liquidity and reduce expense pressures.
- Dollar-Cost Average: Use dips to build a position, especially if Bitcoin's price stabilizes or rises.
- Monitor Competitors: Track SEC decisions on BlackRock's IBIT and VanEck's filings—their progress could signal when BTCO must pivot or risk obsolescence.

Conclusion: Structural Headwinds vs. Bitcoin's Long Game

BTCO is struggling today because it's stuck in a regulatory and structural limbo. But its custodial strengths and Bitcoin's fundamentals give it legs for a comeback. Investors willing to endure the growing pains of a nascent market—and bet on Bitcoin's adoption—might find BTCO a bargain once its mechanics catch up to its peers.

Stay disciplined, and keep an eye on the SEC's calendar. This ETF's future isn't written yet.