(Toronto) Cryptocurrency hit highs this week not seen in more than two years after a U.S. regulator approved 11 cryptocurrency-linked exchange-traded funds (ETFs), raising the prospect of a new era for digital currency, but also a call for investor caution.
In approving ETFs from companies like BlackRock and Franklin Templeton, US Securities and Exchange Commission (SEC) Chairman Gary Gensler said the move did not signify any approval or endorsement of cryptocurrency.
“Investors should remain cautious of the myriad risks associated with bitcoin and products whose value is tied to crypto,” he said in a statement Wednesday.
The latest news doesn’t change much when considering whether to invest in cryptocurrency, said Sadiq Adatia, chief investment officer at BMO Global Asset Management.
“Nothing has changed as to why you would want to hold it or why you wouldn’t want it,” he said.
Still, this option does make it easier and cheaper for American investors to buy cryptocurrency, which helps generate more interest, he said. But Canadian investors have been able to buy ETFs whose holdings are placed in cryptocurrencies since 2021.
Approvals in the United States will likely make these avenues less expensive for Canadian investors, as competition drives down management fees, he explained.
Already, Fidelity Investments Canada announced Thursday that it has reduced its fees from 0.95% to 0.44%, effective Friday, on its Fidelity Bitcoin Advantage ETF Fund. Meanwhile, BlackRock came out with one of the cheapest options, available at 0.12% in the first year.
Adatia believes that while the exchange-traded fund option is simpler, investors still need to be careful as it remains volatile.
Bitcoin climbed about 5% to nearly US$49,000 on Thursday, the first day of trading for US ETFs, before giving up much of those gains, hovering around US$43,500 as of midday Friday.
The cryptocurrency was trading around US$16,000 in December 2022 and peaked at over US$68,000 in October 2021.
“There are big fluctuations that few investors are able to manage,” said Mr. Adatia. When you have extreme movements, people enter at the wrong time and exit at the wrong time. »
He said those considering an investment in cryptocurrency should plan on a long-term horizon and be able to overcome bumps in the road.
Others view the recent approvals as more significant for the cryptocurrency and the segment in general.
“This is certainly a watershed moment for the industry and the asset class. With the approval of an ETF, bitcoin is sort of entering the financial firmament,” said Alex Tapscott, managing director of the digital assets group at Ninepoint Partners.
The launch of US ETFs and the fact that major asset managers are talking about them to their clients could help reignite the debate around the asset and the potential of the technology behind it.
“On the contrary, some of the most significant and impactful things are yet to come,” he argued.
While he doesn’t offer investment advice, he says Ninepoint’s view is that some exposure to digital assets is very useful as part of a well-diversified portfolio.
Ninepoint has diversified its own offerings, last year converting a first “pure-play” cryptocurrency ETF into a broader portfolio to cover a range of blockchain-related companies as well as exposure to bitcoin and Ether.
“As the sector matures and the asset class grows, taking a portfolio approach is a much smarter route than owning a single asset, right? »
When it comes to valuing cryptocurrency, Mr. Tapscott said it’s difficult to pin down, but ultimately it depends on its usefulness as a store of value and as a as a means of exchange.
The cryptocurrency’s market valuation of around $1 trillion is still only about a tenth of that of gold, while offering many benefits for the digital economy, he pointed out.
The launch of gold ETFs in the early 2000s led to a notable increase in the asset class, and he expects to see a similar effect with bitcoin, with more than 4.5 billion already traded in new offers.
There are notable differences between betting on precious metals and cryptocurrencies that Gensler highlighted when endorsing bitcoin-based exchange-traded products.
“The underlying assets of metals ETFs have consumer and industrial uses, while in contrast, bitcoin is primarily a speculative and volatile asset that is also used for illicit activities, including ransomware, money laundering money, sanctions evasion and terrorist financing,” he said.
And while interest is high, some large asset managers in the United States have decided to stay away.
Vanguard, for example, said it would not launch cryptocurrency-related ETFs.
“Our view is that these products do not fit our offering focused on asset classes such as stocks, bonds and cash, which Vanguard considers to be the building blocks of a long-term investment portfolio well balanced. »
