Want to bet on Bitcoin? Here’s a Canadian ETF to consider

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There are many options available to participate in the bitcoin boom, but experts say the vast majority of them are too risky for the average investor.

DADO RUVIC / Reuters

For cautious Canadian ETF investors tempted by the latest bitcoin craze, fund manager Fred Pye offers what many will consider to be one of their only pure gambling options.

The CEO of 3iQ Digital Asset Management heads the Bitcoin Fund (QBTC-T), which started operations last spring. It’s a unique offering in Canada and one of two pure-play bitcoin ETFs in the world. (The other, the BTCetc Bitcoin Exchange Traded Crypto Fund (BTCE-FF), debuted on the Frankfurt Stock Exchange in August).

There are many options available to buy in the bitcoin boom, but Mr. Pye argues that the vast majority of them – from virtual bitcoin exchanges to ETF-like products called exchange-traded notes (ETNs) – are too much. risky for the average investor.

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“Ours is the only Bitcoin fund you can put into your RRSP,” says Pye.

QBTC’s fund profile indicates that it seeks exposure to bitcoin through long-term holdings of digital currency as an alternative to direct investment in bitcoin and that it will not speculate on short-term changes in the price of the bitcoin. It costs more than a traditional ETF, with a management fee of 1.95%.

As the price of bitcoin surpassed $ 40,000 last week, QBTC more than quintupled from its debut of $ 9.24 per share on April 9, 2020 to a high of $ 71.95 on Friday.

Of course, this type of growth always carries the risk of falling back just as quickly. The price of bitcoin has fallen more than 20% since Friday and was trading at around US $ 34,000 as of late Monday afternoon. QBTC shares, meanwhile, fell around 15% to $ 55 per share in trading on Monday.

The pioneering cryptocurrency has become gangbusters again in recent weeks, breaking its previous high of US $ 19,783 in 2017 and attracting a new wave of investors. Experts say inflation, amid massive stimulus spending around the world, is pushing people towards valuable storage assets, including Bitcoin.

Unlike 2017, the latest wave of bitcoin appears to be driven by ultra-health. According to a report last month from data firm Chainalysis, investors buying at least 1,000 bitcoin collectively spent more than US $ 11 billion on cryptocurrency in the last three months of 2020.

“Now that you have the [American billionaire hedge fund manager] Paul Tudor Jones of the world sees bitcoin as a prudent way to invest his money, which has caused a double take, ”says James Burron, president of the Canadian Association for Alternative Strategies and Assets (CAASA). “This is what led to a change in my mind.”

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Mr. Burron is not surprised to see Mr. Pye offer one of the first bitcoin tracking ETF products.

“Fred always did everything first,” he says, referring to Mr. Pye’s efforts in the 1980s to obtain regulatory approval for gold and platinum certificates to trade directly on the Montreal Exchange via the now defunct Guardian Trust Company.

“It was 1983,” Pye recalls. “It took us three years to register them. [Regulators] said they were non-traditional, unstable gatekeepers and could be used for criminal purposes. Well, we did and 40 years later fast forward, and one of the top five ETFs in the world is GLD [The SPDR Gold Trust]. We are doing the same now with Bitcoin. “

Mr Pye believes bitcoin is “the only thing that can catch up with gold in terms of store of value,” adding that the latest boom is unlikely to fail any time soon.

The total bitcoin market value is still around US $ 600 billion, even after the latest correction, and the total cryptocurrency market topped US $ 1 trillion for the first time on Sunday. Soon, “it will be five trillion dollars, then it will challenge gold to ten trillion dollars,” Mr. Pye says.

Part of his confidence in Bitcoin’s continued progression stems from the fundamental scarcity built into its design. Every four years, the amount of new bitcoin produced every 10 minutes is halved, until the supply is finally capped at 21 million.

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Many have tried and failed to launch their own versions of a bitcoin ETF over the years, dating back as far as 2013 with the Winklevoss twins, but regulators have rejected all efforts. This left Mr. Pye’s competitors relegated almost entirely to the over-the-counter, otherwise known as “pink sheets” markets.

An example of such competitors would be the Bitwise 10 Crypto Index Fund, which Bitwise Asset Management debuted on the OTCQX under the ticker symbol BITW on December 9. The product proved to be popular, with more than $ 67 million in shares changing hands. its first three days of trading. However, its structure is undoubtedly too complex for a typical ETF investor.

“In terms of practicality, the way to think about this product is that it is a regulatory structure that shares some similarities with ETFs, but it is not an ETF,” said the chief investment officer of Bitwise, Matt Hougan, at ETF.com last month. ” [It also has] some similarities to a closed-end fund, but it is not a closed-end fund. It is an indefinite public statutory trust. “

QBTC’s closest rival, according to Mr. Pye and Mr. Burron, is the Grayscale Bitcoin Trust in the United States. The near-closed fund has attracted more than $ 8 billion in assets under management, although Pye warns that this is largely permanent capital.

“The difference between us and [Grayscale] is we a virtual ETF right now i can issue shares in a closed fund everyday just like an ETF and we have monthly and annual redemptions so investors can always bail out our fund if they wish, ”Mr. Pye said. “Grayscale, by comparison, is a lifelong asset.”

Regarding QBTC, Mr Pye says that 3iQ does private placements on a daily basis to try to keep as close as possible to the actual price of bitcoin while physically backing up the bitcoin purchased by the fund. ETNs, by comparison, are derivative products, which means that they are often a bit removed from the real price of bitcoin and therefore can be subject to even more extreme volatility.

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Regardless of the wide range of risks associated with the even wider range of options for those looking to gain bitcoin exposure, Mr. Burron believes the key for interested investors is to simply get in while you still can.

“Once you realize the scale, you start to think ‘I should at least put something in there,’” he says.

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