Canadian cryptocurrency funds lose potential U.S. inflows

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Canadian exchange-traded fund providers have lost an opportunity to receive large amounts of cash from American investors after US fund managers made a last-minute decision not to allocate part of their money to Canadian bitcoin funds.

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More than a decade later, US regulators have approved a batch of regulatory filings allowing US investment firms to launch ETFs that invest in bitcoin futures. The nation’s first fund – the ProShares Bitcoin Strategy ETF – is set to begin trading on the New York Stock Exchange on Tuesday under the ticker BITTO.

Unlike many of its Canadian counterparts, who invest in “physical” bitcoin, BitOw will track the futures market of bitcoin. Futures are a type of derivative that allow investors to predict what a financial asset will be worth at a later date.

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While ProShares doesn’t invest directly in bitcoin, the fund originally filed a prospectus with regulators stating that it could allocate 25 percent of the fund’s assets to Canadian ETFs “that match the spot price of bitcoin.” may confer risk.”

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The investment prospectus cited Canadian ETFs such as Purpose Bitcoin CAD ETF, CI Galaxy Bitcoin ETF and Evolve’s Bitcoin ETF as examples of funds they might consider, as well as other Canadian pooled investment vehicles that sell bitcoin. such as the Grayscale Bitcoin Trust.

Five other US ETF providers also filed similar investment prospectuses, saying they could allocate between 15 percent and 25 percent to Canadian funds, which would have resulted in a greater influx of new funds from American investors.

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But on Friday, all six US providers pulled references to Canadian funds from their filings without giving any reason.

“It looks like regulators may have asked them to exclude those exemptions before final approval,” said Raj Lala, chief executive officer of Evolve ETF, which launched one of Canada’s first bitcoin ETFs in February and one last month. and launched a multi-cryptocurrency ETF that tracks both bitcoin and ether.

“We had heard some buzz that investment companies might have to remove it, and when we saw the final prospectus all the companies did it at the same time.”

Canada’s approval to invest in a cryptocurrency fund may still come down in the pipeline for a US bitcoin ETF, said Mon Saf, CEO of Objective Investments Inc., which invests more than $1.7 billion in North America’s first bitcoin fund — the Purpose Bitcoin ETF. manages.

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“I think the opportunity we missed will be only for a short period of time, and over time US bitcoin providers will get the discount they need so they can be as close to the location as possible,” said Mr. Seif in an interview.

An exemption to allocate Canadian bitcoin funds to investment managers has already been approved by the US Securities and Exchange Commission for other investment funds outside of bitcoin futures, Mr. Safe said. For example, Amplify invests in the Purpose Bitcoin ETF in its Transformational Data Sharing ETF, a US fund that invests in equity securities of companies involved in the development and use of blockchain technologies.

“This is only the first day for the US Bitcoin Fund and I think the SEC is navigating it step by step,” he said.

Experts say it is difficult to know whether US investors are already holding Canadian bitcoin ETFs and will be buying US-based bitcoin ETFs once they are launched.

If they do, it could affect assets and new inflows into Canada’s “physical” bitcoin ETFs, said Daniel Strauss, director of research for ETFs and financial products at National Bank Financial Inc.

However, many of the assets that appear in Canadian products belong to domestic retail investors, Mr. Strauss said, and many would be unlikely to buy US ETFs instead. He continues to caution retail customers to exercise “great discretion” regarding highly volatile and speculative assets such as cryptocurrencies.

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“It is unlikely that any of those investors would cross the threshold to invest in a slightly more complex futures-based product with ‘roll yield’ slippage, but anything is possible in the world of crypto,” he said.

Bitcoin, a digital currency that is not backed by any country’s central bank, is known for being highly volatile, with its price moving more than 30 percent a day. Launched in 2009, the cryptocurrency grew in popularity in 2017 after reaching US$20,000 before dropping by more than 85 percent in 2018.

Over the past year, bitcoin has made a comeback and is now worth over US$61,000.

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