Canada has a well-deserved reputation as a pioneer in the development of low-cost exchange-traded funds, so it’s no surprise that it has established itself as the leader in the creation of cryptocurrency ETFs. .
While U.S. regulators have been wary of the crypto space, it has been embraced in Canada with 36 different funds in the segment (not including U.S. dollar and hedged versions), according to National Bank Financial.
For many investors, crypto is a mysterious and unpredictable asset class, but they want some exposure. Crypto proponents argue that bitcoin can be a better store of value than traditional currencies because there is a limited supply of coins. Soaring prices over the years tend to support this argument.
“It’s the biggest FOMO [fear of missing out] exercise you could never undertake,” says Yves Rebetez, ETF analyst and partner at Credo Consulting Inc. in Oakville, Ontario.
He does not currently invest in crypto funds, but held a small stake in blockchain, the core technology of crypto assets.
Rebetez advises ETF investors to add a small amount of crypto to their portfolio if they are driven by this fear of missing out.
ETFs offer an easy way to dive into investing in cyber currencies such as bitcoin or ethereum (ether) and store them in registered or unregistered portfolios. It is presented as having a low correlation with traditional assets such as stocks, bonds and cash; however, it remains a volatile asset class.
The crypto assets on which these ETFs are based are “highly speculative and risky,” says Tiffany Zhang, ETF analyst at National Bank Financial in Toronto.
Digital assets are volatile, often fluctuating huge amounts over a short period of time.
“We advise clients to exercise caution before investing in these products,” she says.
Although the Canadian crypto ETF space is barely a year old, fund companies have been busy innovators. The vast majority hold cash crypto assets (three funds invest in bitcoin futures), two use covered call options to increase yield, a few are “green” using carbon offsets, and a another invests in several ETFs of crypto assets and related stocks.
The first crypto ETF launched in Canada (one day on February 18, 2021) was the Purpose Bitcoin ETF (BCCT-T), which has a management expense ratio (MER) of 1.48% and the unhedged version in Canadian dollars at $623. -million assets. It has fallen about 12% since the start of the year. (All figures from Morningstar as of April 20).
The fund’s top competitors in the space include the 3iQ CoinShares Bitcoin ETF (BTCQ-T), charging an MER of 1.25% and with $1.1 billion in assets; the CI Galaxy Bitcoin C$ Unhedged ETF (BTCX-BT), charging 0.85% and with $258 million in assets and; the Evolve Bitcoin ETF (EBIT-T), with fees of 1.8% and assets of $100.7 million. Each has lost around 12% so far this year.
Because these hold bitcoin spot assets, there is no big difference between them other than their individual MER and currency/hedged version.
Ether-based crypto ETFs
Toronto-based Purpose Investments, which rolled out five crypto ETFs in just over a year, was among four companies that launched ether-based crypto ETFs within days of each other in April this year. last. The Purpose Ether ETF (ETHH-T) charges 1.48% with $163.4 million in assets and has fallen 17% so far this year.
The ether category is dominated by the CI Galaxy Ethereum ($CA) ETF (ETXX-BT), charging 0.76% and with $550.5 million in assets. Others include the 3iQ Coinshares Ethereum ETF (ETHQ-T), with an MER of 1.24% and assets of $262 million, and the Evolve Ether ETF (C$ unhedged) (ETHR-T) charging 1.23% and with $78.7 million in assets. All of these are also down about 17% year-to-date.
Purpose’s Chief Investment Officer Greg Taylor noted that hedge funds were using crypto fund calls to generate yield, leading the company to adopt the strategy of launching yield-focused crypto ETFs in November. latest.
The Purpose Bitcoin Yield ETF (BTCY-T) charges 1.41% and has $26.7 million in assets. It has fallen 10% since the start of the year. The Purpose Ether Yield ETF (ETHY-T) charges 1.41% with $42.5 million in assets and is down 15% year-to-date.
According to the Purpose Investments website, BTCY (CAD hedged) returns 12.8%, BTCY.B (CAD unhedged) returns 12.9% and BTCY.U (USD) returns 16.2%. ETHY (CAD hedged) returns 15.4%, ETHY.B (CAD unhedged) returns 15.5% and ETHY.U (USD) returns 19.5%.
Larger Crypto ETFs
Investors looking for a broader crypto investment can choose from three funds: the recently launched CI Galaxy Multi-Crypto ETF (CMCX-T), which charges 0.50% with $2.6 million (down 5.7% since its creation on January 28); the Purpose Crypto Opportunities ETF (CRYP-T), which charges 1.58%, has $4 million in assets and is down about 7% year-to-date; and ETF Evolve Cryptocurrencies (ETC-T) with $29.1 million in assets and down 13% so far this year. (ETC is listed as having an MER of zero, but since it holds both EBIT and ETHR, a management fee of 0.75% will apply to the underlying ETF holdings).
The broader crypto funds differ in how they expose themselves: ETC owns two underlying crypto Evolve ETFs (EBIT and ETHR); the CMCX fund (unhedged Canadian and US dollar) holds 50-50 exposure to bitcoin and ethereum, and the actively managed fund CRYP holds primarily bitcoin and ethereum, with smaller amounts of related companies cryptography.
Investors in the United States cannot buy ETFs containing physical crypto. Currently, the only option is a trio of futures-based crypto-asset ETFs that have combined assets of approximately US$1.2 billion.
Crypto’s promise as a safe haven against market and currency fluctuations has not been confirmed so far, notes Neena Misha, director of ETF research at Zacks Investment Research in Chicago.
“We found that cryptocurrencies were strongly tied to these high-growth tech stocks and when those stocks fell, the cryptocurrencies also fell,” she says.
Still, she says investors may want to hold between 1% and 5% of their portfolio in crypto. She owns a small percentage of her personal investments: “It’s something new that I don’t want to miss.”