The Canadian market has been at the forefront of the adoption of cryptocurrency ETFs. For instance, the Purpose Bitcoin ETF, launched in February 2021, made headlines as the world’s first physically settled Bitcoin ETF. This product allows investors to buy shares that directly correspond to Bitcoin holdings, offering a straightforward way to gain exposure to Bitcoin without dealing with the complexities of digital wallets or exchanges. Similarly, the Evolve Bitcoin ETF provides an alternative, offering exposure to Bitcoin with a slightly different structure and fee model, catering to diverse investor preferences.
This piece explores the emerging landscape of cryptocurrency ETFs, highlighting their role in bridging traditional finance with the digital asset realm. It details how these ETFs offer Canadian investors a regulated, accessible, and diversified investment vehicle. By leveraging familiar brokerage accounts and benefiting from Canada’s robust regulatory framework, investors can confidently gain exposure to cryptocurrencies, enjoying the potential growth of digital assets while benefiting from tax-efficient investment options and enhanced security.
What are Cryptocurrency ETFs?
Crypto Exchange Traded Funds (ETFs) function similarly to traditional ETFs, which pool assets—such as stocks, bonds, or commodities—into a single fund that investors can buy and sell on an exchange. However, a crypto ETF focuses on cryptocurrencies like Bitcoin or Ethereum instead of holding traditional assets.
These funds track the performance of these digital currencies, allowing investors to gain exposure to the price movements of cryptocurrencies without the complexities and risks associated with directly purchasing and storing them. You don’t have to open crypto exchange or wallet accounts. You also don’t need private or public keys. In fact, you’re pretty much investing in an ETF, only that it tracks crypto.
In Canada, the advent of crypto ETFs has opened up a new, regulated pathway for investors to enter the cryptocurrency market, combining the innovation of digital assets with the familiarity and security of conventional investment vehicles.
The significance of crypto ETFs lies in their ability to simplify cryptocurrency investment while maintaining the benefits of a regulated and transparent structure. Canadian investors can purchase shares of crypto ETFs through their existing brokerage accounts, just as they would with other ETFs, making it easier to include cryptocurrencies in a diversified portfolio.
Types of Cryptocurrency ETFs: Spot Crypto ETFs Vs. Futures Crypto ETFs
Depending on how they handle their exposure to the crypto market, crypto ETFs are of two major types: Spot ETFs and Futures ETFs.
What are Spot Crypto ETFs
These ETFs often hold the underlying digital assets directly, stored securely by institutional custodians. It’s essentially like owning the underlying cryptocurrency itself, but without the complexities of storing and securing it. For example, spot Bitcoin ETFs would own physical Bitcoin (or its equivalent in digital form) and track its price directly. And when you invest in such crypto ETF, the ETF manager directly holds the cryptocurrency on your behalf.
What are Crypto Futures ETFs
A futures crypto ETF invests in futures contracts rather than the actual cryptocurrency. The fund holds futures contracts that speculate on the cryptocurrency’s future price, not the actual cryptocurrency itself. For instance, if you invest in a Bitcoin futures ETF, you are investing in futures contracts that bet on Bitcoin’s future price rather than owning Bitcoin directly.
The Emergence of Crypto ETFs in Canada
Canada’s emergence as a leader in the crypto ETF space showcases the country’s forward-thinking approach to financial innovation. In February 2021, Canada made global headlines when the Ontario Securities Commission (OSC) approved the Purpose Bitcoin ETF (BTCC), marking the launch of the world’s first physically settled Bitcoin ETF. This groundbreaking product provided Canadian investors with direct exposure to Bitcoin and set a precedent for the global financial markets, demonstrating that digital assets could be integrated into traditional investment frameworks in a regulated and secure manner.
The success of the Purpose Bitcoin ETF was immediate and widespread, attracting over $400 million in assets within its first few days of trading. This rapid adoption reflected the strong demand among Canadian investors for a regulated way to gain exposure to the rapidly growing cryptocurrency market.
Following the success of the Purpose Bitcoin ETF, several other crypto ETFs quickly entered the Canadian market, each offering unique features and investment strategies. The Evolve Bitcoin ETF (EBIT) and CI Galaxy Bitcoin ETF (BTCX) soon followed, providing Canadian investors with more options to tailor their exposure to Bitcoin according to their risk tolerance and investment objectives. The arrival of the CI Galaxy Ethereum ETF (ETHX) in April 2021 expanded the landscape further by introducing Ethereum-focused investment opportunities.
These early entrants into the Canadian crypto ETF market demonstrated not only the appetite for digital assets among Canadian investors but also the capability of the country’s regulatory bodies to adapt to and oversee these novel financial products. As Canada continues to foster innovation in the cryptocurrency space, the early adoption and rapid proliferation of crypto ETFs underscore the country’s pivotal role in shaping the future of global digital asset investment.
Benefits of Crypto ETFs
Crypto ETFs offer a range of compelling benefits that resonate strongly with Canadian investors, particularly those seeking to diversify their portfolios with exposure to digital assets. Here are some of the advantages of investing in them.
1. Accessibility
Crypto ETFs provide an accessible entry point into the cryptocurrency market for Canadian investors. Traditionally, investing in cryptocurrencies involved dealing with digital wallets, private keys, and crypto exchanges—barriers that could be daunting for those unfamiliar with the technology. Crypto ETFs simplify this process by allowing investors to gain exposure to digital assets through conventional brokerage accounts and registered investment plans like Tax-Free Savings Accounts (TFSAs) and Registered Retirement Savings Plans (RRSPs). This ease of access allows a broader range of Canadians to participate in the growing digital asset market without technical expertise.
2. Regulation and Security
In Canada, crypto ETFs operate within a robust regulatory framework overseen by the Ontario Securities Commission (OSC) and the Canadian Securities Administrators (CSA). These regulatory bodies enforce stringent standards to protect investors, ensuring that the assets held by the ETFs—whether in physical form or through futures contracts—are secure and transparently managed. For example, the Purpose Bitcoin ETF stores its Bitcoin holdings in cold storage, providing a high level of security against potential theft and hacking. This regulated environment offers Canadian investors peace of mind, making crypto ETFs a safer and more secure way to invest in digital currencies than direct ownership.
3. Liquidity and Ease of Trading
Crypto ETFs offer the liquidity and ease of trading typically associated with traditional ETFs. Canadian investors can buy and sell shares of crypto ETFs on major exchanges, allowing them to enter and exit their positions efficiently. This liquidity makes it easier for investors to respond to market conditions and manage their portfolios with greater flexibility, further enhancing the appeal of crypto ETFs as a practical investment option.
4. Diversification
Cryptocurrency ETFs allow investors to diversify their exposure within the digital asset market. For instance, the CI Galaxy Ethereum ETF provides exposure to Ethereum, allowing investors to benefit from the growth potential of a different asset class within the cryptocurrency market. By investing in multiple cryptocurrency ETFs, Canadian investors can spread their risk across various digital assets, reducing the impact of volatility in any single cryptocurrency.
5. Tax Efficiency
In Canada, cryptocurrency ETFs can be held within registered accounts such as Tax-Free Savings Accounts (TFSAs) and Registered Retirement Savings Plans (RRSPs). This provides significant tax advantages, as these accounts’ gains are tax-free or tax-deferred. For Canadian investors, this means they can enjoy the potential growth of cryptocurrencies while benefiting from the tax-efficient nature of these accounts.
Risks Of Crypto ETFs
Investing in Crypto ETFs can offer exciting opportunities, but it’s essential to understand the associated risks before diving in. While these investment vehicles provide a regulated and accessible way to gain exposure to digital assets, they also come with challenges that Canadian investors should carefully consider. Below, we outline the key risks involved in investing in Crypto ETFs.
1. Market Volatility
Cryptocurrencies like Bitcoin and Ethereum are notorious for their extreme price volatility. The value of these digital assets can swing dramatically due to market sentiment, regulatory developments, technological changes, and macroeconomic factors. This inherent volatility can lead to significant fluctuations in the value of Crypto ETFs, making them a high-risk investment. Investors must be prepared for the possibility of sharp declines in their ETF holdings, especially during market downturns or periods of heightened regulatory scrutiny.
2. Regulatory Uncertainty
While Canada has embraced a progressive stance on cryptocurrency regulation, the global regulatory environment remains uncertain and subject to change. Any sudden shifts in regulations, whether in Canada or internationally, could impact the operation of Crypto ETFs. This might include trading restrictions, tax treatment changes, or even the delisting of specific ETFs. Canadian investors must stay informed about regulatory developments and consider how these changes could affect their investments.
3. Technological Risks
Cryptocurrency’s underlying technology presents unique risks that investors must be aware of. Issues such as security vulnerabilities, forks in blockchain protocols, or failures in the custodial practices of ETFs could expose investors to potential losses. The rapidly evolving nature of blockchain technology means that even well-established Crypto ETFs are not immune to these risks. Before investing, due diligence and a thorough understanding of the cryptocurrency market and specific ETF products are crucial.
By being aware of these risks, investors can make more informed decisions when considering Crypto ETFs as part of their investment portfolios.
Leading Cryptocurrency ETFs in Canada
To illustrate the practical benefits of cryptocurrency ETFs, let’s examine some of the leading products available to Canadian investors.
1. Purpose Bitcoin ETF
The Purpose Bitcoin ETF is a spot Bitcoin ETF launched in February 2021 by Purpose Investments and stands as a landmark in the financial landscape, marking the world’s first Bitcoin ETF backed by physically settled Bitcoin. It quickly gained traction, amassing $1 billion in assets under management (AUM) within its first month. This rapid growth underscored the strong demand among investors for a straightforward and secure way to gain exposure to Bitcoin. The Purpose Bitcoin ETF has grown to manage over CAD$2.3 billion in assets, making it the most prominent Bitcoin spot ETF globally.
The ETF’s success can be attributed to its ability to closely track the performance of the underlying Bitcoin. It offers a reliable investment vehicle that reduces the complexities and risks typically associated with directly purchasing and storing Bitcoin. This makes it particularly appealing to retail and institutional investors seeking to diversify their portfolios with digital assets while avoiding the hurdles of direct cryptocurrency investment. Purpose Investments’ continued innovation in cryptocurrency, including the launch of additional crypto-focused ETFs, has solidified its position as a leader in digital asset management within Canada and globally.
2. Purpose Ether ETF
The Purpose Ether ETF is a spot ether ETF that was launched by Purpose Investments on April 20, 2021. It’s the world’s first physically settled Ether ETF. This innovative fund, trading under the tickers ETHH (CAD hedged), ETHH.B (CAD unhedged), and ETHH.U (USD unhedged) on the Toronto Stock Exchange (TSX), offers investors a straightforward and cost-effective way to gain direct exposure to Ether, a leading digital currency. As of mid-2024, the Purpose Ether ETF has approximately CAD 451.3 million in assets under management (AUM), showcasing its robust adoption and the growing interest in Ethereum as an investment vehicle.
Purpose Ether ETF’s investment strategy focuses on directly holding Ether tokens and eschewing derivatives to provide investors with direct access to the digital currency. This structure allows the ETF to efficiently reflect Ether’s price without the premiums or discounts often seen in closed-end funds. The fund’s daily net asset value (NAV) is pegged to the daily spot price of the TradeBlock ETX Index, ensuring accurate pricing and transparency for investors. This strategy has democratized access to Ether, making it easier for Canadian investors to participate in the cryptocurrency market within the regulatory framework and protections of a traditional ETF.
3. Evolve Bitcoin ETF
The Evolve Bitcoin ETF, one of Canada’s prominent cryptocurrency exchange-traded funds, was launched in February 2021, soon after Canada’s regulatory authorities approved the first Bitcoin ETFs in the country. This marked a significant milestone in the global financial landscape, positioning Canada as a leader in offering regulated cryptocurrency investment products.
The latest available data shows that the Evolve Bitcoin ETF manages approximately CAD 205.12 million in assets under management (AUM). The fund provides investors with direct exposure to Bitcoin, allowing them to participate in the cryptocurrency market without needing to manage the complexities of digital wallets or the security risks associated with directly holding Bitcoin. Evolve’s ETF tracks the price of Bitcoin by keeping the actual cryptocurrency, ensuring that its performance closely mirrors that of the underlying asset. This makes it an attractive option for investors looking to diversify their portfolios with exposure to digital assets in a regulated and familiar investment structure.
Evolve also offers a competitive fee structure and has made adjustments to ensure that the ETF remains an attractive option for institutional and retail investors. This ETF is a testament to Canada’s proactive approach to embracing cryptocurrency within the traditional financial system, providing investors with innovative tools to navigate the evolving market.
4. Evolve Ether ETF
The Evolve Ether ETF, launched on September 29, 2021, is a pioneering investment vehicle that provides Canadian investors with direct exposure to Ether (ETH), the native cryptocurrency of the Ethereum blockchain. The ETF is designed to simplify investing in Ether by eliminating the need for individual investors to manage private keys, wallets, and the complexities associated with trading on cryptocurrency exchanges. As of July 2024, the Evolve Ether ETF manages assets under management (AUM) of approximately $104.95 million, reflecting the growing interest in Ethereum as a vital component of the decentralized finance (DeFi) ecosystem.
This ETF is listed on the Toronto Stock Exchange under the ticker symbols ETHR (for CAD units) and ETHR.U (for USD units), making it accessible to a broad range of investors. With a management fee of 0.75%, the Evolve Ether ETF offers a relatively low-cost option for those seeking exposure to Ethereum’s potential as a long-term investment in the rapidly evolving digital asset space.
5. CI Galaxy Bitcoin ETF
The CI Galaxy Bitcoin ETF, a notable player in Canada’s cryptocurrency investment landscape, debuted in the financial markets in 2021. This pioneering fund, launched by CI Global Asset Management in partnership with Galaxy Digital, has garnered significant attention and investment due to its innovative approach to providing exposure to Bitcoin. As of now, the ETF boasts impressive assets under management of C$734.92 million, reflecting its growing popularity among Canadian investors seeking to tap into the potential of Bitcoin through a regulated investment vehicle.
The CI Galaxy Bitcoin ETF is designed to offer investors a straightforward and efficient means of gaining exposure to Bitcoin’s price movements. It achieves this by investing directly in physical Bitcoin, which it holds in custody with a regulated custodian. This structure ensures that the ETF’s performance closely mirrors that of Bitcoin, providing investors with a transparent and accessible way to participate in the cryptocurrency’s volatility and growth potential. The fund’s assets under management have steadily increased, underlining the burgeoning interest in Bitcoin as a legitimate and mainstream investment asset.
6. CI Galaxy Ethereum ETF
Launched in 2021, the CI Galaxy Ethereum ETF has quickly established itself as a significant investment vehicle within the Canadian cryptocurrency market. This ETF, introduced by CI Global Asset Management in collaboration with Galaxy Digital, offers investors a sophisticated and regulated method to gain exposure to Ethereum, the second-largest cryptocurrency by market capitalization after Bitcoin. Its introduction marks a critical step in integrating digital assets into mainstream financial products, catering to the growing demand for Ethereum-focused investment options.
The CI Galaxy Ethereum ETF aims to provide investors with direct exposure to Ethereum’s price movements by investing primarily in physical Ethereum. The fund ensures that its performance is closely aligned with Ethereum’s value, offering a transparent and efficient way to capitalize on the cryptocurrency’s volatility and growth potential. Currently, the ETF manages C$578.86 million in assets, reflecting its appeal to investors who recognize Ethereum’s potential to drive innovation and value in the blockchain space.
7. Fidelity Advantage Bitcoin ETF (FBTC)
The Fidelity Advantage Bitcoin ETF, launched in November 2021, represents another significant development in the Canadian cryptocurrency ETF market. Managed by Fidelity Investments Canada, one of the country’s largest asset managers, this ETF provides investors with exposure to Bitcoin through direct holdings. The ETF’s launch marked the entry of a major traditional asset manager into the cryptocurrency space, further legitimizing the asset class within Canada’s financial ecosystem.
Fidelity’s reputation for robust risk management and extensive research capabilities add credibility to the Fidelity Advantage Bitcoin ETF, making it an attractive option for investors seeking exposure to Bitcoin within a regulated and secure framework. The fund currently has C$480.23 million in assets under management.
8. The Fidelity Advantage Ether ETF
The Fidelity Advantage Ether ETF (FETH) is a prominent player in Canada’s cryptocurrency ETF landscape, offering investors direct exposure to Ether, the native cryptocurrency of the Ethereum blockchain. Launched on September 26, 2022, this ETF was designed to meet the growing demand for crypto investments in Canada, particularly among those seeking to add a diversified and alternative asset to their portfolios.
As of June 30, 2024, the Fidelity Advantage Ether ETF manages assets totaling approximately $23.3 million. It has quickly become an essential option for Canadian investors looking to tap into the potential of Ethereum, thanks to Fidelity’s robust in-house storage services that ensure the secure custody of the fund’s Ether holdings. The ETF is listed on the Toronto Stock Exchange, making it accessible and convenient for Canadian investors. The fund has shown strong performance, with a 50.17% return year-to-date as of June 2024, reflecting cryptocurrency investments’ volatile yet potentially rewarding nature.
9. 3iQ CoinShares Bitcoin ETF
The 3iQ CoinShares Bitcoin ETF, launched in April 2021, is a crucial player in Canada’s growing cryptocurrency ETF market. This ETF offers investors exposure to Bitcoin by directly holding the cryptocurrency, with the assets securely stored in a segregated cold storage system managed by Gemini Trust. The fund has seen significant growth, with assets under management (AUM) surpassing $1.1 billion as of mid-2024. Listed on the Toronto Stock Exchange under the ticker BTCQ, this ETF appeals to those looking for a regulated and accessible way to invest in Bitcoin within Canada. It also features a management fee of 1.00%, making it a competitive option for investors interested in digital assets.
10. 3iQ CoinShares Staking Ether ETF
The 3iQ CoinShares Staking Ether ETF, introduced in April 2022, represents a significant development in Canada’s cryptocurrency investment landscape. This innovative ETF, created through a collaboration between 3iQ Corp and CoinShares, brings a novel approach to Ethereum investments by integrating staking functionality. It stands out for its focus on Ethereum and its strategic emphasis on earning rewards through staking, a vital feature of the Ethereum network.
The ETF is designed to expose investors to Ethereum while simultaneously participating in the Ethereum 2.0 staking mechanism. By staking Ether, the ETF earns rewards in the form of additional Ether, which can enhance returns over time. This dual strategy of holding Ethereum and staking it for rewards offers a compelling value proposition for investors seeking to benefit from Ethereum’s price appreciation and its income potential. As of the latest figures, the 3iQ CoinShares Staking Ether ETF manages C$63.6 million of assets, reflecting a strong market reception and growing investor interest in this unique approach to cryptocurrency investment.
How to Invest in Crypto ETFs
As shown so far, investing in cryptocurrency ETFs has become an increasingly popular option for Canadians seeking exposure to the burgeoning digital asset space without directly buying and managing cryptocurrencies.
Step 1: Research Brokerage
The first step in investing in crypto ETFs is to select a brokerage platform that offers access to these funds. Several major financial institutions and online trading platforms in Canada provide access to various cryptocurrency ETFs. Choosing a platform that aligns with your investment goals, provides robust security measures, and offers competitive fees is crucial. Once you have selected a brokerage, you must open and fund an investment account, which typically involves completing some paperwork and verifying your identity.
Step 2: Choose ETF
After setting up your account, you can explore the various crypto ETFs available. Each ETF has its investment strategy and focus, whether it’s on Bitcoin, Ethereum, or other digital assets. Take the time to research the different options, considering factors such as the ETF’s performance history, management fees, and the specific cryptocurrencies it holds. For instance, ETFs like the CI Galaxy Bitcoin ETF or the Purpose Ether ETF offer direct exposure to Bitcoin and Ethereum, respectively, while funds like the 3iQ CoinShares Staking Ether ETF provide additional benefits through staking rewards. Understanding the nuances of each ETF will help you make informed decisions tailored to your investment strategy.
Step 3: Invest
Once you have selected an ETF that meets your criteria, you can purchase shares through your brokerage account. Investing in crypto ETFs operates similarly to investing in traditional stocks or ETFs; you place an order, and the ETF shares will appear in your account once the transaction is completed. For Wealthica users, integrating these investments into your portfolio is straightforward. Wealthica’s platform allows you to track and manage crypto ETF investments alongside other assets, providing a comprehensive view of your financial position. This integration helps you monitor performance and adjust your strategy as needed, making it easier to stay on top of your investment goals in the dynamic world of cryptocurrency.
Future of Cryptocurrency ETFs in Canada
As cryptocurrency evolves, the future of cryptocurrency ETFs in Canada appears promising and complex. These ETFs have revolutionized how Canadians invest in digital assets, offering a regulated and accessible way to gain exposure to cryptocurrencies like Bitcoin and Ether. However, the market is still in its early stages, and several factors will shape its trajectory. One critical development could be the introduction of more diversified cryptocurrency ETFs that provide exposure to a broader range of digital assets, including decentralized finance (DeFi) and non-fungible tokens (NFTs). Such diversified offerings allow investors to spread risk across multiple assets, capturing the full spectrum of the cryptocurrency market.
Regulatory developments will also play a crucial role in shaping the future of cryptocurrency ETFs in Canada. As the market grows, increased scrutiny and potential new regulations could ensure investor protection and market stability while driving the industry’s evolution. Furthermore, competition will likely increase as more financial institutions enter the space, leading to lower fees and more innovative products. For Canadian investors willing to navigate the volatility and embrace the innovation of the cryptocurrency space, these ETFs represent a dynamic and exciting frontier of investment opportunities.
FAQs
Here are answers to some of the most frequently asked questions you may have about cryptocurrency ETFs in Canada
What Is A Bitcoin ETF?
A Bitcoin ETF, or Exchange-Traded Fund, is a financial product that allows investors to gain exposure to Bitcoin without directly purchasing or holding the cryptocurrency. Instead, the ETF tracks the price of Bitcoin and is traded on traditional stock exchanges, making it accessible through standard investment accounts. This structure simplifies investing in Bitcoin, offering the security, regulation, and liquidity of conventional financial markets while eliminating the need for investors to manage the technical complexities of cryptocurrency storage and transactions. Bitcoin ETFs have become famous for those looking to diversify their portfolios with digital assets, all within a familiar investment framework.
How Do ETFs Work?
ETFs, or Exchange-Traded Funds, operate by pooling assets—such as stocks, bonds, or commodities—into a single fund that investors can buy shares of on a stock exchange. Each share of an ETF represents a fraction of the total holdings, allowing investors to gain diversified exposure to an entire portfolio of assets with a single purchase. ETFs trade throughout the day at market prices, just like individual stocks, offering flexibility and liquidity. Their design combines the diversification benefits of mutual funds with the trading ease of stocks, making them a popular investment vehicle for those looking to build a balanced portfolio without needing to manage individual assets directly.
Does Canada Have A Crypto ETF?
Canada has embraced cryptocurrency ETFs, pioneering the way in regulated digital asset investments. The country’s financial markets feature several prominent crypto ETFs, including the CI Galaxy Bitcoin ETF and the Purpose Ether ETF, which offer investors direct exposure to Bitcoin and Ethereum. These ETFs provide a secure and regulated platform for Canadians to invest in cryptocurrencies, bridging the gap between traditional financial products and the burgeoning world of digital assets. By facilitating access to Bitcoin and Ethereum through established investment vehicles, Canada continues to lead in integrating cryptocurrencies into mainstream investment strategies.