Offering simple Bitcoin access to normal, everyday investors in a low-fee, secure way has long been the Holy Grail for financial service providers. So it must stick in the craw of America’s largest asset managers that their near neighbours Canada beat them to the Bitcoin ETF punch.
Purpose Investments launched the Purpose Bitcoin ETF (BTCC) on February 18 2021 on the Toronto Stock Exchange (TSX) and immediately broke records, trading $165m worth of shares in the first day. As of March 10, it has attracted $836m in investor capital with holdings of over 12,158BTC. The fund’s custodian is Cidel Trust Company, a subsidiary of private Canadian bank Cidel, with Gemini serving a sub-custodian. The custody aspect is key, as we’ll explore below.
Most importantly, the floodgates are now open. North American investors have been waiting years for a professionally custodied, regulated cryptocurrency ETF and now three have come along at once. Just days after approving the Purpose ETF, the Ontario Securities Commission waved through a similar product by Evolve. On February 25, the $230bn Canadian asset manager CI Financial filed for an Ethereum ETF, and began trading on 9 March. Then on March 2 Evolve also filed to list an Ethereum ETF, again on the TSX.
The SEC has been batting away plans for US-listed Bitcoin ETFs for years, not least in the midst of the last Bitcoin mega bull run in 2017. There has been a laundry list of asset management giants that have attempted Bitcoin ETFs in the States; with zero success.
The Winklevoss twins, through their Gemini exchange, were the first to attempt it in 2013, with the regulator turning them down after four long years. Van Eck/SolidX was next to try, filing in 2016 and battling for three years before withdrawing their proposal in 2019.
ProShares, Direxion, GraniteShares, Wiltshire Phoenix and Bitwise all tried their hand, watching from the sidelines as the SEC stalled for time and dragged out the process. All the while, European cryptocurrency ETPs traded on regulated exchanges like Germany’ XETRA and Switzerland’s SIX were stealing a march on the US. And as recently as mid-2020 we were still seeing headlines like ‘Wall Street Greets WisdomTree’s Bitcoin ETF With Derision’.
ETFs are highly liquid products that retail investors can buy and sell like stocks and shares on recognised exchanges through their broker or bank, at attractive spreads throughout the day, in small amounts or large, and crucially in tax-efficient ways.
In Canada, almost all ETFs can be bought in a Tax Free Savings Account (TFSA), which is the equivalent of an ISA or SIPP in the UK or an IRA or 401(k) in the US. The stipulations vary, but investments made in these kinds of accounts are generally free from taxation and therefore highly valuable for boosting investor gains.
So it’s not hard to see why a professionally custodied product — listed in a format that investors recognise — exploded out of the gate. It took less than an hour on debut day to display exactly how popular Bitcoin ETFs are.
As Bloomberg’s senior ETF analyst Eric Balchunas tweeted: “Wow, the Canada Bitcoin ETF $BTCC already traded $64m worth of shares. That would be an epic first full day for a US ETF let alone in the first hour of trading. Also, the spread is a penny wide. Good start.”
The main reason why ETFs have soared in popularity since they first appeared 30 years ago is that they provide a simple, secure and cost-efficient investment option for the average retail investor. There are no custody concerns about holding Bitcoin on an exchange, paying outlandish fees for every trade, or having to be your own bank. No one wants to be the guy or gal who lost their password or seedphrase to their wallet, forgoing millions of dollars-worth of Bitcoin in the process.
Institutional investors, hedge funds, professional traders and those of the high net worth persuasion will still seek prime services, off-exchange settlement and military-grade optical air-gapped cryptoasset custody. But for the little guy without the technical know-how or willingness to learn, an ETF remains the easy way to buy Bitcoin with minimal hassle.
Funnily enough, it was the Canadians who pioneered ETFs in the first place. While definitions vary, it’s generally accepted that the Toronto 35 Index Participation fund was the world’s first ETF in 1990.
And 31 years down the line, it’s America’s cousins to the north who are again leading the pack.