BlackRock's Ethereum Spot ETF ETHA to Undergo 1-for-3 Reverse Stock Split, Effectively Reducing Trading Costs

Coin Circle (120btc.CoM): Bloomberg's senior ETF analyst Eric Balchunas noted in a post on X on August 5 that BlackRock's Ethereum spot ETF "iShares Ethereum Trust (ETHA)" will undergo a 1-for-3 reverse stock split in October this year. The stock price will adjust from approximately $14 to about $42, aiming to reduce the trading cost spread from around 7 basis points (bps) to about 2 bps. He also humorously remarked about cryptocurrency exchanges: "ETF issuers treat a 7 bps spread as a 'problem' that needs to be solved, while crypto exchanges charge around 140 bps; it's a completely different world up there."

What is a Reverse Split? How Does it Lower Trading Costs?

A reverse split refers to consolidating multiple shares into one. In the case of ETHA's 1-for-3 split, every three shares held by an investor will be combined into one, with the stock price multiplied by three, leaving the total value of the holdings unchanged, and having no substantial impact on the fund's net asset value or the investors' equity.

So why go through this process? The key lies in the fixed minimum tick size of $0.01 for U.S. stock quotes. When an ETF's stock price is only $14, even a $0.01 spread translates to about 7 bps in percentage terms; however, if the stock price is raised to $42, the same $0.01 spread only represents just over 2 bps. In other words, the reverse split does not change any fundamentals but simply raises the unit price to "dilute" the fixed one-cent spread, thereby reducing the implicit trading costs for investors by two-thirds.

Balchunas: ETF Industry Finds 7 bps Too Expensive, Crypto Exchanges Charge 140 bps

What Balchunas really wants to emphasize is the significant cultural cost gap between the traditional ETF industry and cryptocurrency exchanges. In the world of ETFs, a 7 bps spread is already seen as a defect that issuers must actively address, with BlackRock even willing to use a reverse split as a formal corporate action for this purpose. In contrast, for cryptocurrency exchanges, the overall cost for retail investors to convert dollars into cryptocurrencies (including fees and spreads) often exceeds a hundred basis points, which is the market norm.

In response to a comment below the post questioning "where does the 140 bps come from? I only pay 40 bps," Balchunas replied that 40 bps is still considered "crazy" by ETF standards and revealed that he had actually tried to purchase Bitcoin himself for research, discovering that the lowest cost to convert dollars to Bitcoin through multiple exchanges connected via the Ledger app was at least 150 bps.

The Cost War Between Spot ETFs and Exchanges

This comparison of "7 bps vs. 140 bps" somewhat explains why spot cryptocurrency ETFs have been able to continuously attract significant retail and institutional funds from exchanges since their launch. For investors who simply want to hold positions without needing on-chain functionalities, ETFs offer extremely low trading friction costs, combined with the convenience of traditional brokerage accounts, making them evidently attractive.

Of course, the positioning of exchanges and ETFs does not completely overlap: purchasing cryptocurrencies directly on exchanges comes with self-custody, on-chain transfers, DeFi applications, and other functionalities that ETFs cannot provide; the higher costs partly reflect these additional services. However, as traditional asset management giants are meticulous even about 7 bps, cryptocurrency exchanges will inevitably face increasing competitive pressure on their fee structures if they wish to retain purely buy-and-hold users.

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