Horizons applies to launch Canada’s first bitcoin ETF for retail investors

Canadian advantage managers are racing to launch the country’s very first cryptocurrency exchange-traded fund which tracks the price execution of bitcoin.

Industry analysts say the launching of a bitcoin ETF for retail traders could provide widespread adoption and allow investors to easily access an asset class that has proven difficult for them to purchase through digital wallets. At the same time, an ETF would attract important savings to retail investors since closed-ended capital, an investment that typically trades with large premiums, as in some instances up to 40 percent.

Here is the 2nd regulatory filing that month for a bitcoin ETF. In early January, ETF newcomer Arxnovum Investments Inc. employed with regulators to list a bitcoin ETF which would also trade on the Toronto Stock Exchange.

The OSC hasn’t approved either fund.

Bitcoin is a digital currency that is not endorsed by any country’s central bank. First established in 2009, the cryptocurrency spiked in popularity in 2017 after attaining US$20,000 before plummeting over 85 percent in 2018.

Recently, investor interest in bitcoin has once again surged as the cost hit a fresh all-time large of US$40,000 at the start of 2021. But the digital money is also proven to be extremely volatile, with price swings of over 30 percent in one day.

Horizons ETFs highlights from its regulatory documents that the bitcoin funds are not’conventional investments’ and so are’highly speculative investment tools.’ The ETF supplier is known for its leveraged and reverse ETFs, which utilize sophisticated contracts to magnify returns and so are much riskier than traditional ETFs. In addition to HBIT, the company has registered to launch an inverse version of the bitcoin fund – under the ticker HIBT – where investors could bet on the cost of bitcoin falling.

Daniel Straus, manager of ETFs and monetary goods research at National Bank Financial Inc., says retail clients should exercise’good prudence’ around highly volatile and speculative assets such as cryptocurrencies.

‘Before purchasing any bitcoin, it would be wise to have the technical complexity required to comprehend the peer reviewed mathematical cryptography which undergirds the [cryptocurrency] system,”’ Mr. Straus explained. ‘Clients that this sophisticated are inclined to be educated enough to open their own’bitcoin pocket’ and trade directly on a crypto-asset exchange, obviating the requirement for an ETF.’

Throughout bitcoin’s trend in 2017 and early 2018, both Canadian and U.S. ETF firms went head-to-head trying to establish North America’s very first bitcoin ETF. At the time, many Canadian advantage managers – like Horizons, Evolve Funds Group Inc. and Purpose Investments – filed figures to authorities in the hope of launching bitcoin ETFs, however, not one of the companies received regulatory approval from the OSC.

Unlike some of the earlier investment suggestions to this OSC, Horizons has registered to track the futures marketplace of bitcoin – a marketplace regulators may be more inclined to approve. Futures are a type of derivative that allow investors to speculate about which a cost will likely be at a subsequent date. If approved, the ETFs will track an inherent indicator according to CME bitcoin futures trades, which is being licensed from the Chicago Mercantile Exchange Inc..

The regulatory challenges that stalled bitcoin ETFs previously prompted other Canadian strength managers to rally to entering the bitcoin market with closed-ended funds, which trade like an initial public offering (IPO). Investment director 3iQ Corp. paved the way for bitcoin closed-ended capital after winning a three-year battle with the OSC for approval to launch the Bitcoin Fund (QBTC:TSX). Last month, Toronto-based CI Financial Corp. finished a US$72-million IPO because of the CI Galaxy Bitcoin Fund, although alternative-investment company Ninepoint Partners LP, also of Toronto, filed a prospectus to establish an identical investment named Bitcoin Trust.

‘One of the major advantages of the ETF arrangement as a potential vehicle for crypto vulnerability would be to mostly eliminate the premiums/discounts into [net asset worth ] exhibited by closed-end capital in the secondary market,’ stated Andres Rincon, manager and head of ETF earnings and strategy at TD Asset Management, in a research note last week.

‘It makes [us] cringe to see retail investors pay to an asset in a considerable premium to [net asset worth ] on public trades… the result is allowing retail investors to always overpay for a safety in secondary markets based on no mathematical reasoning.