Purpose Investments Inc. has been cleared by regulators to launch the world’s first bitcoin exchange traded fund, opening the door for retail investors to more easily access a cryptocurrency that had been stalled by regulators for years.
On Thursday, the Ontario Securities Commission (OSC) gave the green light for Purpose Investments, the asset management arm of Purpose Financial LP, to launch the Purpose Bitcoin ETF on the Toronto Stock Exchange. Under the ticker BTCC, the fund will begin to trade on Feb. 18 and invest directly in bitcoin, allowing retail investors to access the cryptocurrency without the need for a digital wallet.
Purpose Financial chief executive officer Som Seif, an ETF veteran, says he and his team had private discussions with the OSC over the past eight months to finalize the launch of the ETF. He said that, since 2017, regulators have become more comfortable with the asset class as institutional investors have adopted cryptocurrencies more widely and there is more infrastructure to support the asset.
“There is a greater recognition that this is an asset class that investors are drawn to whether the regulators like it or not,“ Mr. Seif said. “I think the regulators now recognize that creating an efficient, regulated structure is a much better outcome for investors’ protection than some of the things we have seen in recent years that went unregulated, were either outright fraudulent or left investors paying egregious fees.”
Bitcoin is a digital currency that is not backed by any country’s central bank. Launched in 2009, the cryptocurrency spiked in popularity in 2017 after reaching US$20,000 before plummeting more than 85 per cent in 2018.
A revival brought prices to a new all-time high of US$40,000 at the start of 2021. But the digital currency is known to be highly volatile, with price swings of more than 30 per cent in one day.
Until now, asset managers could give retail investors only closed-ended bitcoin funds – an investment that typically trades with large premiums, in some cases as much as 40 per cent.
During the bitcoin craze of 2017 and early 2018, Canadian and U.S. ETF companies went head to head trying to launch North America’s first bitcoin ETF.
In recent weeks, several ETF providers filed a preliminary prospectus with the OSC in hopes of being the first to market. Horizons ETFs Management (Canada) Inc., Evolve Funds, Accelerate Financial Technologies Inc. and newcomer Arxnovum Investments Inc. have all publicly applied with regulators to list a bitcoin ETF that would also trade on the Toronto Stock Exchange.
In the United States, more than 10 investment companies have filed with the Securities and Exchange Commission (SEC) for similar products. Last month, U.S. President Joe Biden appointed a new SEC chair, prompting hopes that a bitcoin ETF could be approved in 2021.
The OSC’s approval of BTCC could nudge other markets to see similar products come to light.
“The SEC will definitely feel the pressure to allow such a product to come to the marketplace because there are already products in the market that are taking advantage of the exposure of bitcoin that are not efficient for investors and are not being done in a regulated format like the SEC would want,” Mr. Seif said.
Bitcoin holdings are kept in “cold storage” – an offline custodian that cannot be hacked. Gemini Trust Company LLC will be sub-custodian for the fund, and CIBC Mellon Global Securities Services Co. will act as fund administrator.
BTCC has a 1-per-cent management fee and will invest in the physical form of bitcoin rather than futures that would allow investors to speculate on the price at a later date. The fund will track the TradeBlock XBX Index, which uses an algorithm to calculate the consolidated price of bitcoin every second.
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