The meteoric ascent of bitcoin has created a lot of buzz for the cryptocurrency, as well as interest from investors clamoring to enter one of the hottest markets.
Over the last year, the price of bitcoin has skyrocketed more than 900 percent, rising from just under US$5,000 to nearly US$54,000. The cryptocurrency’s meteoric ascent has created a lot of buzz, as well as interest from investors clamoring to enter one of the hottest markets.
Unfortunately, bitcoin can be notoriously difficult to understand, and that has kept some investors away.
Accessibility is changing quickly, however. In the last 12 months there have been a plethora of new additions to the bitcoin investment landscape, including several bitcoin trusts and the world’s first three bitcoin exchange-traded funds (ETFs).
ETFs were first established in the 1990s as an alternative investment vehicle. In the decades since then, the global ETF industry has ballooned to include safe haven asset classes like gold and silver, as well as burgeoning and niche sectors like airlines, psychedelics and space travel.
In August 2020, the global ETF sector saw inflows surpass US$7 trillion.
Designed to hold a variety of assets, ETFs often contain commodities, equities and currencies, or a mix of the three. This diversity really began to resonate with investors following the 2008 financial crisis. Coincidentally, this was the same event that paved the way for bitcoin.
Thirteen years later, the two sectors have merged to create bitcoin ETFs. The first two, the Purpose Bitcoin ETF (TSX:BTCC) and the Evolve Bitcoin ETF (TSX:EBIT), launched a week apart in February 2021.
A third bitcoin ETF, the CI Galaxy Bitcoin ETF (TSX:BTCX.B), launched the next month.
The goal of these ETFs is to offer investors exposure to the bitcoin market through holdings of the digital currency. Using pooled investment funds, they purchase bitcoins and hold them in a “cold wallet” or “cold storage” — an offline destination that can’t be hacked or breached.
The ETFs then track the performance of bitcoin in US dollars on a specific index.
For Raj Lala, CEO and president of Evolve ETFs, there are a few key difference between his bitcoin ETF and the others. “EBIT is the lowest-management-fee bitcoin ETF currently in market with a management fee of 0.75 percent,” he said. “Another distinguishing factor is the reference index used for EBIT. The benchmark for the bitcoin ETF is the CME CF Bitcoin Reference Rate provided by CF Benchmarks, a highly regulated crypto benchmark administrator.”
The newest bitcoin investment tool, ETFs are often compared to the…