Crypto investors haven’t been rattled even as prices have fallen dramatically from recent highs, with Canadian ETFs seeing modest inflows this year.
Money flowed into crypto ETFs in 2021 after Purpose Investments Inc., Evolve Funds Group Inc. and CI Global Asset Management launched direct-custody Bitcoin and Ethereum ETFs. The Purpose Bitcoin ETF took only a month to reach $1 billion in assets under management.
“[2021] was a very busy year with a ton of [product] launches, new innovation in the space, interest globally for these products and a lot of inflows,” said Andres Rincon, director and head of ETF sales and strategy with TD Securities Inc.
Conversely, there have been “a limited amount” of product launches this year and crypto fund inflows have slowed, given the performance of the digital asset, he said.
Bitcoin fell below US $20,000 this year after peaking above US$67,000 in November 2021, while Ethereum was trading around US $1,500 in early September after peaking above US$4,600 in November 2021.
But despite what many have called a “crypto winter,” investors haven’t abandoned crypto ETFs in Canada. Cryptoasset ETFs had $58 million in inflows this year as of Aug. 31, according to National Bank Financial Inc.
However, total AUM in crypto ETFs collapsed with the value of the underlying currencies to $2.2 billion at the end of August, compared with $7.3 billion in the funds when prices peaked in November 2021.
Rincon said he thinks the majority of crypto ETF flows have come from the retail space, as only about one-third of crypto ETF trading volume from September 2021 to September 2022 were the block and cross trades typically employed by institutional investors.
“What’s been interesting is that you still have a base of investors who want exposure to crypto, which is why you haven’t seen huge, consistent outflows out of the space despite the weak performance,” Rincon said.
While DIY investors have driven crypto ETF flows, Rincon said, some financial advisors from the independent channel have also contributed. Based on his discussions with TD advisors, demand is coming from younger clients.
Vlad Tasevski, chief operating officer and head of product with Purpose Investments, said crypto is part of some advisors’ long-term strategy for clients, typically with no more than a 5% allocation.
“They know it’s going to be volatile, but [they see the] upside,” he said, and some are taking advantage of current prices to add to client portfolios.
Elliot Johnson, chief investment officer and chief operating officer with Evolve ETFs, said some advisors may be focused on the practical applications of cryptocurrencies and the underlying blockchain technology.
“This is something that’s real,” Johnson said. “If you’re an investor, you always have to be looking at investing in new things. That’s why a lot of people take cryptoassets and put them in their growth venture category.”
Based on discussions with independent money managers across the globe, Rincon said some of the institutional money flowing into crypto ETFs this year has come from the U.S., Australia and Europe.
If direct-custody crypto ETFs are approved in the U.S., he said there could be small outflows from Canada on the institutional side, especially if the U.S.funds are cheaper.