Until recently, Canadians seeking exposure to cryptocurrencies had to own them directly, which comes with drawbacks like losing the passwords for these digital assets or them being a poor fit for retirement portfolios.
But in recent months, the North American market, led by Canada, has launched a handful of exchange-traded funds (ETFs) for investors interested in bitcoin and other cryptocurrencies, making these soaring but highly volatile assets more accessible to millions of investors, including in registered accounts.
“The ETF industry here has always been cutting-edge,” says Spencer Barnes, associate vice-president of mutual funds and ETF strategy at Raymond James Ltd. in Toronto, adding that Canada was the first country to develop ETFs.
Canada is again leading the way with cryptocurrency ETFs, he adds, including the launch in February of the Purpose Bitcoin ETF (BTCC-B-T), the world’s first bitcoin ETF from Purpose Investments Ltd. Purpose also recently launched carbon-neutral versions of BTCC and its Purpose Ether ETF (ETHH-T), addressing concerns surrounding crypto-mining’s energy consumption and impact on climate change.
Other ETF providers have followed suit with cryptocurrency options. Investors today have several choices in this space, from those offering direct exposure to cryptocurrencies to others holding companies benefiting from cryptocurrencies’ rise and their underpinning technology, blockchain.
Here are six ETFs illustrating the diverse ways to invest in this promising but risky theme:
Purpose Bitcoin ETF (BTCC-B-T)
Launched in February, Purpose’s offering is the world’s first bitcoin ETF, offering investors an alternative to owning cryptocurrency directing themselves, says Enoch Omololu, personal finance blogger at savvynewcanadians.com.
One key benefit: “There’s no need to take custody of your coins,” he says, which means less risk of losing passwords and, in turn, the bitcoin assets.
With BTCC, a Canadian dollar, non-currency-hedged ETF, investors still own actual bitcoin without that risk, but there is a 1 per cent management fee. Purpose said its management expense ratio (MER), which will be finalized after one year of trading, is capped at 1.5 per cent.
Another upside to BTCC, according to Mr. Omololu, is that, as an ETF, it can be held in a registered retirement savings plan (RRSP) and tax-free savings account (TFSA), whereas bitcoin and other cryptocurrencies are ineligible.
Investors can also select three other variations: a U.S. dollar version, a Canadian dollar currency-hedged product, and its new carbon offset, non-currency-hedge version.
BTCC is currently the largest Canadian listed ETF with about $1.1-billion in assets under management (AUM). BTCC is up about 28 per cent since it started trading. (All performance data from Morningstar as of Nov. 12 close)
CI Galaxy Bitcoin ETF (BTCX-B-T)
Launched in March as a closed-end fund, the CI Global Asset Management offering started trading as an ETF in May and has about $228-million in AUM.
The ETF is similar to the Purpose product, but with a lower management fee of 0.40 per cent and an MER cap of 0.95 per cent, Mr. Omololu says. Also like the Purpose fund, CI’s fund holds actual bitcoins in its portfolio.
BTCX trades in U.S. dollars, with an unhedged Canadian dollar version (BTCX-U-T). The ETF is up 16 per cent since it started trading.
Proshares Bitcoin Strategy ETF (BITO-A)
BITO, launched Oct. 19, is the first U.S.-listed bitcoin ETF. “We’re behind Canada, following your lead,” says Lois Gregson, senior ETF analyst at FactSet in St. Louis.
She says more U.S.-listed cryptocurrency ETFs are pending, including one from star stock picker Cathie Wood’s ARK Invest, according to a filing with the U.S. Securities and Exchange Commission.
Unlike CI’s ETF, BITO does not invest in bitcoin, instead holding front-month bitcoin futures contracts to emulate the cryptocurrency’s performance.
“With front-month futures, you must roll [sell expiring contracts and buy new ones] every month, and so there’s often an added expense with that,” she explains.
BITO’s estimated MER of 0.95 per cent could be higher as a result, she adds. A first-mover in the U.S., the fund has already garnered a lot of investor dollars and is now the world’s largest cryptocurrency ETF with about US$1.4-billion in assets.
By comparison, she notes the Valkyrie Bitcoin Strategy ETF (BTF-Q), launched three days after BITO with the same strategy, has $52-million AUM. BITO’s is up about 3 since it started trading, while BFT is up about 1 per cent.
Evolve Cryptocurrencies ETF (ETC-T)
Investors seeking exposure to ethereum and bitcoin can look to Evolve Fund Group Inc.’s ETF, unhedged to Canadian currency, with an estimated MER of 0.75 per cent. It has amassed about $32-million in assets since it was launched in late September as “Canada’s first multi-cryptocurrency ETF,” according to Evolve. ETC is up about 50 per cent since it started trading.
“This ETF provides some diversification by investing in the two most popular cryptocurrencies… using two crypto ETFs from the same company,” says Mr. Omololu, namely Evolve’s Bitcoin ETF (EBIT-T) and its Ether ETF (ETHR-T), also launched this year.
While providing some diversification, the fund only holds two cryptocurrencies, meaning investors still “could miss out on the ‘next bitcoin,’” Mr. Omololu says.
Less crypto, more diversification
Investors can also look to equity-based ETFs holding companies involved in mining cryptocurrencies, providing services supporting blockchain, or that stand to benefit from growing cryptos’ use cases. These funds offer “more diversified exposure” than ETFs investing only in cryptocurrencies, says Mr. Barnes.
Among the choices is Horizons Big Data Hardware Index ETF (HBGD-T). While it has a small asset base of about $18-million since launching in 2018, the ETF is up about 300 per cent since then and about 85 per cent year-to-date. The increase has been driven by its holdings in larger companies like Lattice Semiconductor Corp., which has benefitted from surging demand for semiconductors.
HBDG, which has an MER of 0.54 per cent, also holds small firms many investors likely haven’t heard of such as crypto miner Bit Digital Inc.
Another ETF option, Bitwise Crypto Industry Innovators ETF (BITQ-A) is more focused on companies with direct cryptocurrency exposure, says Ms. Gregson of FactSet.
BITQ has similar positions as Horizons ETF, including its top holding Galaxy Digital Holdings Ltd, which owns cryptocurrency mining operations and finances other miners, among other activities. Yet it offers slightly more exposure to small-cap, growth companies.
Launched in May, BITQ already has about $135-million in assets but a higher estimated MER than the Horizons product of 0.85 per cent. Since launch, the fund is up about 60 per cent.
While cryptocurrency ETFs are less risky than owning them directly, Ms. Gregson says investors should still be cautious.
“The first rule of investing is don’t buy something you don’t understand,” she says, paraphrasing Warren Buffett’s oft-quoted advice. “That is certainly true in this space.”