Canada was the first country to introduce cryptoasset ETFs, with bitcoin and ether ETFs hitting the market in 2021.
Three years later, the funds are still highly volatile, but providers are confident the ETFs present a long-term opportunity for investors. They also expect acceptance of the funds — and of crypto overall — to grow.
“As education on these products evolves, as education on crypto starts to evolve … further comfort occurs,” said Geraldo Ferreira, senior vice-president, head of investment products and manager oversight with CI Global Asset Management in Toronto.
Crypto ETFs track the price of a specific cryptocurrency, such as bitcoin or ether, by holding the actual coin. They offer investors an easier way of investing in crypto without having to directly purchase and store these digital assets themselves, although management fees should also be considered.
The funds have not had the smoothest run.
Soon after launch, about $6 billion flowed into Canada-listed crypto ETFs. However, the bear market of 2022 brought an 80% decline in prices for this asset class, spelling trouble for ETFs providing exposure to crypto, said Tiffany Zhang, vice-president of ETF research and strategy with National Bank Financial Inc. in Toronto.
“Assets were quite sticky despite price declines, perhaps because the losses were too big and quick to crystallize, and many investors might have treated these investments as [a] writeoff,” she said. “These very early Canadian crypto ETF investors only recently started to break even and make money after three years.”
And as National Bank Financial reported, there has been a dip in demand for Canada-listed crypto ETFs, which suffered redemptions amounting to $432 million for this year to Aug. 31. Some of these flows may have gone to their newly listed U.S. counterparts — spot bitcoin ETFs launched in the U.S. in January, followed by spot ether ETFs in July.
However, the bank noted that the outflow pace from Canada-listed crypto ETFs has been “slowing down recently and some products even posted inflows in recent months.” The funds gathered $102 million in August.
As of Aug. 31, crypto ETFs accounted for $5.5 billion, or 1%, of the total assets in the ETF industry in Canada.
Vlad Tasevski is the head of asset management, institutions and investors with Purpose Investments in Toronto, one of the earliest providers of crypto ETFs. His firm offers five crypto ETFs in total, including two bitcoin ETFs, two ether ETFs and a staking ether ETF.
Tasevski said he believes crypto ETFs will grow over the medium and long term and that there will be opportunities in investing in cryptoassets “that we’re not even aware of right now.”
“These are still highly volatile exposures, [and] that’s the case, given the industry is so early in its development,” he said, “but it’s something that we believe is going to be here for the long term.”
A November 2023 survey by the Ontario Securities Commission (OSC) found that fewer Canadians are interested in owning cryptoassets, and fewer financial advisors are recommending them, citing volatility as the main factor. The survey of 2,360 Canadians found that 10% owned cryptoassets in 2023, down from 13% in 2022.
Tasevski acknowledged that crypto ETFs may not be for everyone, but encouraged investors to pay attention to them regardless.
“At the minimum, they should be watching [crypto] closely to actually understand what crypto provides, what the benefits are,” he said. “Over time, we will see more and more crypto-driven applications in the real business world.”
Ferreira similarly considers crypto to be a volatile but emerging asset class and expects more ETFs providing exposure to crypto to launch. His firm offers a multi-crypto ETF, a bitcoin ETF, an ether ETF and a blockchain technology ETF, along with bitcoin and ether mutual funds.
“As the ecosystem around these other cryptos starts to expand further and further, there could be other opportunities for our regulators [and] U.S. regulators to approve those cryptos to be made available through an ETF vehicle,” Ferreira said. “We’re in the early stages of all this.”
Reflecting on what Canadians have learned about crypto ETFs over the past three years, Andrew Clee, vice-president of product with Fidelity Investments Canada in Toronto, said the funds are here to stay. His firm offers a bitcoin ETF and an ether ETF, and includes a cryptocurrency allocation within its all-in-one ETFs.
Clee added that the U.S. Securities and Exchange Commission approval of both bitcoin and ether ETFs this year further legitimizes and expands access to the asset class.
“The biggest thing we’ve learned is that the education level of investors has grown quite significantly since 2021 around what the asset class is and how it behaves,” Clee said. “Adoption by both the SEC and the OSC to allow these funds, I think, just lends viability to the asset class itself.
This article appears in the October issue of Investment Executive. Subscribe to the print edition, read the digital edition or read the articles online.