Canadians Have Enjoyed Spot Bitcoin and Ethereum ETFs for Years Now
U.S. regulators have significantly lagged their Canadian counterparts now when it comes to cryptocurrency exchange-traded funds.
There's a fair bit of drama in the cryptocurrency industry these days, which includes high-profile legal developments such as Sam Bankman-Fried's conviction, Binance CEO Changpeng Zhao's guilty plea to money laundering, and the SEC suing Kraken for operating an unregistered securities exchange.
Despite these negative events, the momentum behind Bitcoin and Ethereum remains strong. As of November 22, Bitcoin and Ethereum have seen a significant upswing, with their prices surging approximately 126% and 74% year to date, respectively.
This bullish trend is partly fueled by the ongoing speculation and excitement surrounding the potential approval of a Bitcoin ETF by the U.S. Securities and Exchange Commission (SEC), alongside new filings for a spot Ethereum ETF.
However, while the U.S. grapples with regulatory hurdles and delays in approving cryptocurrency ETFs, Canadian investors have been enjoying the benefits of both spot Bitcoin and Ethereum ETFs for some time now.
Thanks to proactive and forward-thinking regulatory approaches, Canada has been ahead of the curve in integrating these digital assets into the mainstream investment landscape. Here's what you need to know before buying one of these ETFs.
Why are spot Bitcoin and Ethereum ETFs so desirable?
The allure of spot Bitcoin and Ethereum ETFs primarily lies in their ability to accurately track the value of their underlying assets. This accuracy is a key factor that makes these ETFs particularly desirable for investors looking to gain exposure to cryptocurrencies like Bitcoin and Ethereum.
Currently, U.S. investors have access only to cryptocurrency futures-based ETFs. These ETFs do not hold actual cryptocurrencies; instead, they track future prices through derivatives, which are financial instruments tied to the future value of the asset.
This indirect exposure means that the ETFs might not perfectly mirror the current market price of the cryptocurrencies, as they are based on the future contracts, not the immediate spot price.
In contrast, a spot Bitcoin or Ethereum ETF directly purchases and holds the corresponding amount of cryptocurrency, placing it in secure custody. This structure allows the ETF to provide a more accurate representation of the Bitcoin and Ethereum spot prices during market trading hours.
Another significant benefit of spot cryptocurrency ETFs is the convenience they offer, especially in terms of retirement savings accounts. Canadian investors can include them in a Tax-Free Savings Account (TFSA) or a Registered Retirement Savings Plan (RRSP).
Finally, unlike direct cryptocurrency investments, which require dealing with digital wallets and cryptocurrency exchanges, investing in a cryptocurrency ETF can be as straightforward as buying a stock through a conventional brokerage account.
The current Canadian Bitcoin and Ethereum ETF landscape
Canadian investors have enjoyed access to these spot ETFs since February 2021 thanks to firms like Purpose Investments, CI Global Asset Management, Fidelity, Evolve ETFs, and more.
The basic type of ETF is the long-only spot Bitcoin or Ethereum ETF. These ETFs hold the underlying cryptocurrency in offline storage, with each share corresponding to a certain proportion of Bitcoin or Ethereum. They come in both currency-hedged and unhedged versions, and some also offer USD-denominated variants.
- CI Galaxy Bitcoin ETF (BTCX.B)
- Purpose Bitcoin ETF (BTCC)
- Evolve Bitcoin ETF (EBIT)
- 3iQ CoinShares Bitcoin ETF (BTCQ)
- Fidelity Advantage Bitcoin ETF (FBTC)
- Evolve Ether ETF (ETHR)
- CI Galaxy Ethereum ETF (ETHX)
- Purpose Ether ETF (ETHH)
Investors seeking income but also desiring spot cryptocurrency exposure can partake too thanks to yield-focused ETFs like the Purpose Bitcoin Yield ETF (BTCY) and Purpose Ether Yield ETF (ETHY). Both of these ETFs hold spot cryptocurrencies but also sell covered call options. This strategy converts the volatility and potential upside of these assets into a high yield, which is paid monthly.
Finally, Canada is also notable for having multi-asset class spot cryptocurrency ETFs like the CI Galaxy Multi-Crypto ETF (CMCX.B). This ETF employs a trend-following model to tactically allocate between Bitcoin, Ethereum, and cash in an attempt to manage volatility and reduce drawdowns.
Please note this article is for information purposes only and does not in any way constitute investment advice. It is essential that you seek advice from a registered financial professional prior to making any investment decision.
