Bitcoin
Bitcoin made headlines this week as legal changes in the United States made it easier to buy in the cryptocurrency – and experts say investors should be aware about the sector and understand the risks before investing in cryptocurrency and related products.
The Securities and Exchange Commission of the United States approved 11 exchange-traded funds (ETFs) that invest directly in bitcoin on Wednesday, with many of them launching trading platforms the following day.
According to experts and stakeholders, the development is transformative for the business and constitutes a significant step toward legitimizing cryptocurrency.
“It’s a big day for (the Grayscale Bitcoin Trust), its shareholders, and really the whole bitcoin and crypto communities overall,” Craig Salm, Grayscale Investments’ senior legal officer, told BNN Bloomberg in a television interview on Friday.
With more individuals interested in bitcoin ETFs as a result of the news, BNNBloomberg.ca chatted with Purpose Investments CIO Greg Taylor and Ninepoint Partners managing director Alex Tapscott to learn more about bitcoin ETFs.
WHAT EXACTLY IS A BITCOIN ETF?
An ETF allows investors to gain exposure to an asset, such as gold or oil, without actually owning it. These ETFs can be traded in the same way that stocks are.
“An ETF is an exchange-traded fund, which is similar to a mutual fund but trades like a stock, meaning you can buy and sell at any time of day,” Tapscott explained over the phone.
“It’s a category that’s grown very quickly for many investors who prefer the convenience and liquidity of being able to invest directly through an ETF.”
The primary distinction between ETFs and actual currency is that cryptocurrency requires the use of a crypto wallet to exchange, whereas ETFs are available to anybody with a stock account and may be bought or sold at any time via stock trading platforms.
“You have to open an account with a crypto broker or deal with a crypto exchange, and then once you actually purchase your real crypto asset, you have to find a way to store it,” Taylor explained the process of directly trading cryptocurrencies.
“These are all different things which a lot of people just weren’t comfortable doing and didn’t really want to.”
WHAT ARE THE OPTIONS IN CANADA?
Spot-bitcoin ETFs have been accessible in Canada since 2021, providing Canadians with a variety of investment possibilities.
According to Tapscott, there are around 20 different Canadian ETFs on the market, each with a different cost structure and level of attractiveness. Purpose Investments, CI, and 3iQ are among the largest providers offering bitcoin ETFs in Canada, according to him.
Canadians can also buy the new US-based ETFs provided their stock trading accounts allow them to trade US-based companies.
Canadians can also own ETFs in ethereum, the world’s second-largest cryptocurrency. Ethereum ETFs are not yet allowed in the United States, but they are in Canada, where some of these products are accessible.
Taylor’s company, Purpose Investments, already offers ethereum and bitcoin ETFs backed by the cryptocurrencies.
HOW DOES THE REGULATORY CHANGE IN THE UNITED STATES AFFECT CANADIAN INVESTORS?
According to Tapscott, the new US restrictions have no effect on Canadian investors, but they may put pressure on Canadian platforms to decrease their costs in order to compete.
“If you’re an investor, then you have the option to buy something that’s got better liquidity and lower fees, I think you’re probably going to make the switch,” he told me.
“It is not something that happens overnight.” Many people are in these funds because they have a taxable gain that they would rather not sell, but I believe that over time, money will flow away, or the Canadian players will be compelled to decrease their costs to meet what the US providers are charging.”
To compete with their American counterparts, some Canadian players have already reduced their costs.
Fidelity Investments, one of the 11 firms that received U.S. authorization earlier this week, has reduced the fees for its Fidelity Advantage Bitcoin ETF account in Canada to 0.39 percent.
Because Bitcoin ETFs trade similarly to equities, anyone with access to the New York Stock Exchange can invest in the ETFs situated in the United States.
Taylor acknowledged that the U.S. market increases competition, but he believes Canadian products are preferable for Canadian investors.
“We still think that the Canadian products are best in class and are always going to be offering investors exactly what they’re designed to,” he went on to say.
“We’ve had three years of trading basically at net asset value, so there’s no premium or discount.”
WHAT SHOULD INVESTORS KNOW ABOUT BITCOIN ETFS?
Investors, according to Tapscott, must understand that all crypto investments can be unpredictable, but the volatility can be a “double-edged sword.”
“Something can go up a lot or down a lot in any period of time, so there’s the potential for gains but also for losses,” he went on to say. “I think that people need to appreciate that before diving in.”
Tapscott went on to say that he wants people become educated about cryptocurrency before investing, so they can make informed judgments about whether or not to invest.
WHAT ARE THE POSSIBLE RISKS?
When it comes to investing in cryptocurrencies, the largest risk remains volatility, and both experts agreed that investors should be comfortable with the volatile character of the assets before investing.
“It’s more volatile than other parts of the market so people need to be wary that this is not something you make into the core of your portfolio, it’s something that you can use as a complement to your portfolio and maybe offer some diversification,” said Taylor.
Tapscott also warned investors to be aware of any vulnerabilities or hacking of the organizations that provide these assets.
“That’s not something an investor can control; that’s up to the issuer, like BlackRock or Fidelity, to manage prudently,” he said, adding that while the chance is low, investors “may want to keep in mind.”
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