Yesterday, securities regulators in Ontario, Canada, approved the first Bitcoin exchange-traded fund (ETF) in North America. The Purpose Bitcoin ETF will run on the Toronto Stock Exchange and allow everyday investors to incorporate “stock” in Bitcoin into their portfolios.
US firms such as crypto custodian Gemini and investment management firm VanEck, meanwhile, have been trying to get a Bitcoin ETF to be approved by the Securities and Exchange Commission (SEC) for years, to no avail.
But the Canada ETF approval could help US regulators become more comfortable with allowing such a product in the United States.
An ETF is an investment vehicle that tracks the price of an asset or group of assets. It’s listed on stock exchanges and traded throughout the day just like a stock. A Bitcoin ETF, therefore, allows people to “buy” Bitcoin without actually buying Bitcoin; they reap the benefits of having BTC in their portfolio, but someone else takes the trouble of holding it (and charges investors a fee).
On the surface, that sounds a bit like the Grayscale Bitcoin Trust, which also provides a way for traditional investors to get exposure to Bitcoin without going through a cryptocurrency exchange. You can trade GBTC through a brokerage firm and even incorporate it into tax-advantaged retirement accounts, such as IRAs.
There’s a downside, however: the Grayscale Bitcoin Trust comes with a premium. It can be more expensive to buy GBTC shares than to just buy Bitcoin—and that’s on top of the 2% management fees.
Drew Voros, writing for ETF.com in December 2020, explained why a Bitcoin ETF is so desirable, given the presence of the Grayscale Bitcoin Trust: “GBTC, which allows accredited investors to buy into the fund through periodic private placements, is plagued by a 20% premium that reflects the demand for a secure investment vehicle for bitcoin. There’s no other way to get bitcoin exposure in a traded fund.” The premium, which fluctuates given market forces, is now closer to 5%.
Patrick Rooney, a product marketing manager at electronic trading infrastructure firm Trading Technologies, told Decrypt, “There’s absolutely a hunger for ETFs and plenty of them.” According to Rooney, they make for “great trading/spreading products.” So, they can be used for options contracts.
But will the US get one?
VanEck, which first filed for a Bitcoin ETF in 2017 and in December re-filed, is hoping so. Gabor Gurbacs, VanEck Director of Digital Assets Strategy, told Decrypt, “I can’t comment on a filing in registration. Generally I’d say Canadian approvals help the case for a U.S. Bitcoin ETF.”
Justin Hartzman, CEO of CoinSmart, a registered crypto exchange based in Toronto, thinks other countries may be watching Canada’s experiment.
“This is a unique position for Canada to be in—typically we would see that regulators in Canada would take a similar approach to what they would see in the United States,” he told Decrypt. “Regulators globally, not just in Canada, are paying more attention to crypto and without a doubt there will be more consultations with industry experts and there will be more regulatory guidance to follow. It might not be immediate, but if that happens the rest of the world could look to Canada as an example and leader.”