FINANCE TODAY | ISSUE NO.28
WELCOME EASIER ACCESS TO BITCOIN
With Bitcoin gradually on its way to being adopted by more and more financial institutions, we are actively seeing a greater number of individuals ready to join the ranks of cryptocurrency investors. Bitcoin has climbed just over 41% this past month, sitting at a hefty price of nearly CAD$65,000 per coin. Currently, many cryptocurrency exchanges exist like CoinBase, Kraken, and Binance which allow investors to easily purchase any cryptocurrency they wish to choose. Realistically though, many Canadian investors don’t want to go through the process of opening a digital wallet and transferring funds there to make the purchase, creating a barrier for them to enter the crypto market.
This barrier has officially broken down now that the world’s first Bitcoin exchange-traded fund (ETF) is ready to trade on the Toronto Stock Exchange (TSX) as of February 18th. Purpose Investments, the asset management branch of Purpose Financial LP, will be trading its new ETF on the TSX under the ticker symbol BTCC, after receiving the green light last week from the Ontario Securities Commission (OSC) (O’Hara, 2021). Their ETF will be available to trade in both U.S. and Canadian Dollars (ticker symbols BTCC.U and BTCC.B, respectively), will have a management fee of 1% and can be purchased in tax-sheltered accounts.
Purpose Chief Executive Som Seif states, “We are so happy to be able to offer this innovation to investors, making the process of owning bitcoin easier than ever. We believe bitcoin, as the first and largest asset in the emerging cryptocurrency ecosystem, is poised to continue its growth trajectory and adoption as an alternative asset, further cementing the investment opportunity it presents” (O’Hara, 2021).
WHAT EXACTLY IS A BITCOIN ETF?
To clarify, an exchange-traded fund (ETF) is a type of security that holds a group of securities that often track some underlying index, like the S&P 500 for example. In many aspects, ETFs are very similar to mutual funds. The major difference is that ETFs are listed on exchanges and are traded throughout the day, while mutual funds are traded only once a day after the markets close. Therefore, a Bitcoin ETF is designed to mimic the price of Bitcoin and allows investors to buy into the ETF without actually owning the cryptocurrency.
Prior to now, companies have faced many issues launching Bitcoin ETFs due to problems from regulatory agencies. Agencies like the Securities and Exchange Commission (SEC) have voiced their concerns about introducing Bitcoin ETFs to the market. They state that since Bitcoin is traded on largely unregulated markets, there are concerns regarding the potential for market manipulation and secure storage of the assets.
WHO ELSE LOOKS TO ENTER THE MARKET?
Purpose Investments are not the only ones ready to offer a Bitcoin ETF to the public this week. ETF provider Evolve Funds Group Inc. announced that it also received regulatory approval from the OSC on Tuesday and began trading its fund on February 19th under the ticker symbol EBIT (O’Hara, 2021). These two companies are only the first to initiate the race to provide a Bitcoin ETF. Currently, Accelerate Financial Technologies Inc., Horizons ETFs Management (Canada) Inc., and Arxnovum Investments Inc. have all publicly applied with regulators to list Bitcoin ETFs that would also trade on the TSX (O’Hara, 2021).
THE BENEFITS OF BITCOIN ETFS
The introduction of Bitcoin ETFs brings many benefits to investors who would like to get involved in the cryptocurrency market. Accessibility is the most prominent benefit being provided to investors wanting to buy bitcoin. The introduction of Bitcoin ETFs negates the need for investors to go through cryptocurrency exchanges, as their transactions will now be conducted on traditional markets. This also opens up the opportunity for Canadians to purchase the ETFs through TFSAs and registered accounts, growing the investment tax-free.
Since Bitcoin ETFs are investment vehicles rather than an actual cryptocurrency, holding it allows investors the option to short sell shares of the fund if they believe the price of the currency will drop, something which isn’t possible for investors holding the actual currency (Reiff, 2019). Finally, Bitcoin ETFs provide users with ease of access to a very complex market. Cryptocurrencies in general are difficult to comprehend since the concept is relatively new and complex. It has yet to be implemented in a setting where the general public can use them and understand their applications.
For many people, Bitcoin is simply a virtual currency they don’t understand. However, ETFs are more established and better understood by a majority of individuals, and it is always recommended to invest in things you understand. Bitcoin ETFs provide investors with a method to invest in something they don’t understand, in a way that they do understand. Investors who would have previously struggled to enter the cryptocurrency market may have just been granted the perfect opportunity to do just that.
O’Hara, C. (2021, February 18). World’s first bitcoin ETF launches on TSX. Retrieved February 18, 2021, from https://www.theglobeandmail.com/business/article-worlds-first-bitcoin-etf-begins-trading-on-tsx/
Reiff, N. (2020, August 29). Bitcoin etfs explained. Retrieved February 18, 2021, from https://www.investopedia.com/investing/bitcoin-etfs-explained/