Once upon a time, one bitcoin was worth $0.001. Now, one bitcoin is worth nearly $47,000. If this sounds like a fairy tale, you're probably right. It's definitely a rags-to-riches tale!
Investing in crypto itself is no longer your only option. On February 18, 2021, the first Canadian crypto ETF (exchange-traded fund), began trading on the Toronto Stock Exchange. Canada now has both Bitcoin and Ethereum ETFs available to trade.
If you're a crypto enthusiast, you are probably aware that there are thousands of different cryptocurrencies available out there, not just Bitcoin and Ethereum. There's Litecoin, Tether, NEO, Cardano, and so many others. Bitcoin and Ethereum are the only Canadian crypto ETFs available, however.
Meanwhile, in the U.S., the Securities and Exchange Commission continues to be worried about a lack of oversight for crypto exchanges. Some concerns about liquidity and the potential for fraud seem to be holding back approval from the SEC. They have delayed a decision until July or August 2021 pending more consultation.
So, if you're looking to trade a cryptocurrency ETF in Canada, you had better look at what's available at home, because the U.S. doesn't have them yet!
These are the early days of Canadian Bitcoin ETF trading on the Toronto Stock Exchange. This means that performance history is only available for a very short term. You also need to remember that a Bitcoin ETF will track the volatility of the Bitcoin itself. This means, should Bitcoin take a dive in value, the ETF will do so as well.
Purpose Bitcoin ETF was the first Canadian Bitcoin ETF to be launched. Purpose Investments is an asset management company that holds $959 million in more than 13 thousand Bitcoin.
The management fee for the Purpose Bitcoin ETF is quite steep at 1%, however, that didn't stop investors from acquiring $630 million worth of shares in the first four days after its launch.
The Evolve Investment Company is traditionally an investor in precious metals. They launched the second cryptocurrency ETF in Canada on February 19, just one day after Purpose Investments launched their Bitcoin ETF.
The Evolve Bitcoin ETF has a lower management fee of 0.75%. EBIT, at the end of the first day of launch, was up 6.7% with a volume of 355,000 shares traded.
The third Canadian Bitcoin ETF was launched by CI Global Asset Management partnering with Galaxy Digital Capital Management.
BTCX began trading on the Toronto Stock Exchange on March 15, 2021. Its management fee is significantly lower than that of the other two Bitcoin ETFs.
It's interesting to note that a comparison of the one-month return (price/NAV) showed BTCX to be lagging slightly behind the other two Bitcoin ETF's with the Purpose Bitcoin ETF hedged version in the lead.
Bitcoin was created as a method of payment outside the central banking authority. It has had huge success in recent years. Ethereum came to being with the goal of becoming the world's decentralized software development system. It runs on an Ethereum platform with Ether as its fuel.
Investors received it enthusiastically, and it is in a position of almost being a competitor for Bitcoin. The reason for this is possibly because an Ether transaction can take only seconds to confirm and the vast ecosystem of applications that it enables.
Investment companies, taking note of the popularity of Ethereum, began working towards building a cold storage of the digital currency and launching ETFs. On April 20, 2021, three Canadian Ethereum ETFs began trading on the Toronto Stock Exchange.
Purpose Ether ETF was launched by (you guessed it) Purpose Investments with CIBC Mellon Global Securities managing the fund. Its management fee is the same as the Bitcoin ETF from this company, 1%.
Investors leaped upon the opportunity to own an ETF based on Ethereum due to its historical success. Ethereum was launched in July of 2015 and by early 2021, one Ether was worth almost $2000! After the Purpose Ether ETF was launched, Ether skyrocketed in value to over $5000. The ETF showed similar success (of course, since it mirrors the rate of the cryptocurrency) and at the beginning of May, the ETF value had appreciated by 185%. The NAV has since stabilized and it is still doing well.
CI Global Asset Management once again partnered with Galaxy Digital Capital Management to launch this Ethereum ETF. The management fee of this cryptocurrency ETF is very competitive at 0.4% which is the same as for their Bitcoin ETF.
Similar to the success seen with the Purpose Ether ETF, in May the value of this ETF increased significantly. Once again, this was a result of the increase in value of Ether. It appears to be doing better than the other ether-based ETFs with an appreciation in value from April 20 to May 10 of 65.59%.
Evolve Investments currently has $3 million in Ethereum assets and charges a management fee of 0.75% for their Evolve Ether ETF. Ether assets are managed by Gemini Trust Company.
All Ethereum ETFs are rated high risk and that's not surprising due to the significant volatility of the cryptocurrency, however, high returns are still excepted.
The reason for the growing interest in cryptocurrency over the years is that it is not controlled by a central bank and inflation can't affect its value. Bank failures will never affect crypto.
As with any online resource, crypto must be kept secure. Digital wallets are used with 'keys' to secure these wallets. Unfortunately, if you lose your key, you lose your crypto since there's no central authority to ask to help you retrieve your key.
Hackers are notorious for stealing poorly secured keys and accessing the contents of digital wallets. They have stolen tokens worth billions of dollars from exchanges and from individual users and their wallets.
Investing in crypto requires a lot of digital-savvy and willingness to learn about the blockchain technology and concepts. Terminology like 'blockchain', 'crypto mining', 'digital wallet', 'digital key', 'proof of work', and 'proof of stake' is mind-boggling to the novice investor. A new investor needs to learn the basics, and perhaps practice before investing in crypto.
Investing in a Crypto ETF is so much easier than directly investing in Bitcoin or Ethereum itself. You can buy and sell ETFs and hold them in a brokerage account.
Another significant advantage of a Canadian crypto ETF is that you don't have to learn the terminology or the technology involved in crypto owning and trading. That also means you don't have to set up a digital wallet that could possibly be hacked.
A huge advantage of most Canadian Bitcoin ETFs and Ethereum ETFs is that they are eligible for government retirement plans like a RRSP or TFSA.
Don't forget that if the crypto backing your Canadian crypto ETF crashes, your ETF will take a dive too!
One disadvantage is that you have lost the benefit that cryptocurrency offers of being outside the central banking system. You cannot exchange your crypto for goods and services and you cannot send it to your family or friends.
There is a cost associated with an ETF rather than the crypto itself. You pay a management fee, and if you're working with a brokerage, they might charge you fees as well.
Whether you choose to invest in Bitcoin or Ethereum cryptocurrency, or you decide to go the easier route and purchase some Canadian crypto ETFs, you're trying to increase your net worth.
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