This article appears in the February 2021 issue of Investment Executive. Subscribe to the print edition, read the digital edition or read the articles online.
Recent product launches have revealed asset managers’ growing interest in entering the cryptocurrency space.
In April 2020, 3iQ Corp. launched the Bitcoin Fund, North America’s first exchange-listed Bitcoin fund, on the Toronto Stock Exchange (TSX). Before long, other asset management companies released similar offerings. CI Global Asset Management Inc. launched the CI Galaxy Bitcoin Fund in December 2020, Ninepoint Partners LP launched the Bitcoin Trust in January of this year and Purpose Investments Inc. launched the world’s first direct-custody Bitcoin ETF in February. (All firms are based in Toronto.)
“The Canadian markets have been very forward-thinking around crypto from the beginning,” said Steve Kurz, head of asset management with New York–based Galaxy Digital Holdings Ltd., which subadvises the CI Galaxy Bitcoin Fund. “We even see filings for ETFs that signal a further sort of innovation in this space.”
Indeed, Horizons ETFs Management (Canada) Inc., Accelerate Financial Technologies Inc., Arxnovum Investments Inc. and Evolve Funds Group Inc. have filed preliminary prospectuses for their own Bitcoin ETFs.
The CI Galaxy Bitcoin Fund completed a US$72-million initial public offering (IPO) in December 2020. The fund, which is listed on the TSX and has a management fee of 1.8%, invests directly in Bitcoin and is priced using the Bloomberg Galaxy Bitcoin index.
Ninepoint’s Bitcoin Trust, which also trades on the TSX, closed a $230-million IPO in January. The fund invests directly in Bitcoin and is priced using the MVIS CryptoCompare Institutional Bitcoin index. The fund’s management fee is 0.7%.
John Wilson, co-CEO, managing partner and senior portfolio manager with Ninepoint, said he expects his experience with precious metals to benefit the Bitcoin Trust. Wilson was previously CEO of Sprott Asset Management LP, where he oversaw Sprott’s physical bullion trusts alongside James Fox, the firm’s former president.
Bitcoin, Wilson noted, is often touted as “digital gold,” and many of Ninepoint’s precious metals investors are looking to add Bitcoin to their portfolios. “I just think five years from now, it won’t be such a weird thing to have Bitcoin in your portfolio mix,” Wilson said.
Accessing Bitcoin presents many of the same challenges as accessing physical precious metals, Wilson noted. Investors must consider how to buy Bitcoin, how to trade it and whether they’ll get ripped off when doing so. Where do they store it? Will their account be hacked?
These concerns are not unfounded. For example, a 2020 report from the Ontario Securities Commission concluded that cryptocurrency-trading platform QuadrigaCX was essentially a Ponzi scheme. Digital coins were kept on the trading platform instead of in a “cold wallet” or “cold storage” account disconnected from the internet, allowing QuadrigaCX’s founder to misappropriate investors’ funds.
To safeguard investors, CI, Ninepoint and Purpose use New York-based Gemini Trust Co. as a sub-custodian of their bitcoins.
Bitcoin remains volatile. After dipping below $6,000 per unit in March of last year, the price ping-ponged between $30,000 and $40,000 in January. The currency soared again after Tesla Inc. announced in February it had bought $1.5 billion worth of Bitcoin. (All prices are in U.S. dollars.)
Wilson and Kurz both said they expect this volatility will calm as more institutional investors enter the market and cryptocurrency matures as an asset class.
As Bitcoin gains currency, it will be less susceptible to swings based on one or two trades, Wilson said. And the frequency of Bitcoin trading will slow as more institutions with long-term investment horizons enter the market.
Kurz added that the introduction of crypto funds also will help to dampen Bitcoin’s price volatility.
“[Bitcoin is] very volatile, but guess what? Precious metals also are very volatile. Maybe not as much as Bitcoin, but certainly more than other asset classes,” Wilson said. “[Bitcoin is] not unusual in that way, but we do think the volatility will come down over time.”