A Bitcoin ETF Was Finally Approved.....In Canada

The approval in Canada could mean that a U.S. bitcoin ETF is near.
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A bitcoin ETF in the United States has for years been elusive. It's not for a lack of trying though. Several issuers, including VanEck and First Trust, have filed to launch bitcoin ETFs but so far each one has been withdrawn or outright rejected by the SEC.

The reasoning the SEC has always given is that it's uncomfortable with the unregulated nature of cryptocurrency and that it's wary of approving a product that could lead to significant losses for unsuspecting investors (keep in mind, the SEC has allowed triple-leveraged ETFs for years).

It was also thought that the launch of bitcoin futures would be a logical step leading towards the eventual approval of a bitcoin ETF since dozens of futures-based ETFs already exist. The SEC still didn't take the bait though and a bitcoin ETF remains non-existent in the United States.

We can't say the same for North America, however. That's because on Thursday the Ontario Securities Commission gave its approval to the Purpose Bitcoin ETF, the first such fund in Canada.

Bitcoin

Bitcoin

Purpose Bitcoin ETF

Here's what we know about the new bitcoin ETF right now.

  • It will invest in bitcoin, not bitcoin futures contracts.
  • It will be listed on the Toronto Stock Exchange.
  • The total expense ratio will be 1% annually.
  • It's only appropriate for those who "can tolerate high risk".

The big question now is does this grease the track for a U.S.-listed bitcoin ETF to finally be approved. Perhaps.

As many have already noted online, Canadian regulators tend to be a bit more easy to persuade than those in the United States. Not only do trading products tend to get approved quicker, the country has also been quicker to adopt things, such as marijuana.

I'm not sure that the launch of a Canadian bitcoin ETF alone is enough to convince the SEC, but it does give it an opportunity to see how such a fund would function and evaluate any potential issues that arise without assuming any personal liability. If the Purpose Bitcoin ETF operates efficiently without major issues, it could give the SEC the confidence it needs to give the green light.

Does a bitcoin ETF get approved sometime in 2021? Based on a quick read through fintwit today, I'd say the majority are siding with yes. I'm going to be a holdout and say no it will not happen in 2021. The Canadian bitcoin ETF certainly helps the cause and Hester Peirce has been arguing that it's time for a little while now. The SEC is a tough nut to crack, however, and I'm thinking their going to be stubborn on this one. If bitcoin futures didn't persuade regulators when it's already approved a number of other futures-based products indicates that hesitation related to cryptocurrency is still strong.

Options For U.S. Investors To Buy Bitcoin

If you want to buy bitcoin without going through the process of establishing a crypto wallet, the Grayscale Bitcoin Trust (GBTC) is still your best option. But don't confuse it with an ETF.

Because it's a trust, it behaves more like a closed-end fund. That means it usually trades at a premium to its underlying asset value (yes, it could trade at a discount as well, but I'm not sure it ever has over the course of its life). The 2% annual fee is steep, but with $30 billion in assets, it hasn't been enough to scare away most folks.

The landscape is evolving further. Bitwise, Osprey and BlockFi have all filed to make their bitcoin trusts available for trading in the over-the-counter market. BlockFi intends to charge 1.75%. BlockFi goes even lower at 1.5%. Osprey would be by far the cheapest at just 0.49%. None of them are yet available to retail traders.

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