Investors are continuing to pile money into Canadian cryptocurrency exchange-traded funds despite the sector losing more than US$1-trillion in value globally so far in 2022.
Canada has about 40 crypto ETFs – including bitcoin and ethereum funds. Since crypto funds first launched in February, 2021, ETF investors have bought steadily in the sector, which had $4.3-billion in total assets as of May 31, according to research by National Bank Financial.
Even as the prices of bitcoin and ether have plummeted this year – down nearly 35 per cent and 50 per cent – the sector has managed to maintain positive sales for the year, with $804-million flowing into crypto assets during the first five months of 2022, according to data from TD Securities Inc.
Crypto ETFs posted their first major sell-off in April, with $338-million flowing out of bitcoin and ethereum ETFs, or 5.5 per cent of total crypto assets.
But withdrawals quickly reversed in early May, even with the collapse of luna and terraUSD, two cryptocurrencies that lost US$40-billion in a matter of days. More than $565-million poured into Canadian crypto ETFs in May, according to research by National Bank Financial – largely fuelled by interest in two U.S. dollar-denominated Purpose Investments ETFs.
Assets in bitcoin ETFs grew more than 10 per cent in the first two weeks of May alone, to $562-million from $512-million at the end of April, while the price of bitcoin fell 25 per cent in the same period.
“When crypto prices start tumbling, the rate of inflow to the Canadian ETFs might decelerate or take a pause, but they don’t meaningfully participate in wider-scale selling,” National Bank research analyst Daniel Straus said in an interview.
“This suggests to me that the users of Canadian bitcoin and ethereum ETFs are still quite crypto-curious and they’re allocating judiciously to a speculative, experimental asset without deploying massive bets all at once.”
Mr. Straus continues to caution investors that crypto investments are “highly speculative and volatile.” Bitcoin is a digital currency not backed by any country’s central bank. Launched in 2009, the cryptocurrency spiked in popularity in 2017 after reaching US$20,000, before plummeting more than 85 per cent in 2018.
But over the past two years, interest in cryptocurrencies spiked again, with the price of bitcoin hitting more than US$67,000 in November, 2021. With renewed investor interest, Canadian asset managers revived 2016 plans to launch bitcoin ETFs, which had not been approved by the Ontario Securities Commission at the time.
Canadian crypto ETFs grow as currencies fall
$8
400
Cumulative flow ($B)-Left scale
Bitcoin total return - Right
7
350
Crypto asset total return series
Ethereum total return - Right
6
300
Flow ($B)
5
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100
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Feb.
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the globe and mail, source: NBCFM ETF Research;
Bloomberg
Canadian crypto ETFs grow as currencies fall
$8
400
Cumulative flow ($B)-Left scale
Bitcoin total return - Right
7
350
Crypto asset total return series
Ethereum total return - Right
6
300
Flow ($B)
5
250
4
200
3
150
2
100
1
50
0
0
Feb.
May
Aug.
Nov.
Feb.
May
2021
2022
the globe and mail, source: NBCFM ETF Research;
Bloomberg
Canadian crypto ETFs grow as currencies fall
$8
400
Cumulative flow ($B)-Left scale
Bitcoin total return - Right
7
350
Ethereum total return - Right
6
300
Crypto asset total return series
5
250
Flow ($B)
4
200
3
150
2
100
1
50
0
0
Feb.
May
Aug.
Nov.
Feb.
May
2021
2022
the globe and mail, source: NBCFM ETF Research; Bloomberg
The Purpose bitcoin ETF was the first bitcoin fund in the world to be approved by regulators in February, 2021. Launched by Purpose Investments under the ticker BTCC, it got off to a roaring start, attracting more than $160-million in investor assets on its first day of trading. The company later launched several ethereum ETFs and multicrypto ETFs. Today, Purpose accounts for 51 per cent of the crypto ETF market share, with more than $2-billion in assets.
Around the same time in early 2021, asset managers Evolve Funds, CI Financial, Ninepoint and 3iQ also began to trade similar bitcoin and ethereum funds. Today, there are eight Canadian asset managers trading crypto asset ETFS, including an inverse leveraged ETF launched last year by Horizons ETFs Management (Canada) Inc.
“When these ETFs were first introduced, many onlookers suspected that these funds were only for short-term speculation, believing that when the price of bitcoin goes down investors will sell off the ETF,” Andres Rincon, director and head of ETF sales and strategy at TD Securities Inc., said in an interview.
“Instead, these investors bring very sticky assets because they legitimately want to go into crypto for a long time and find ETFs to be a good vehicle for that.”
Purpose investments chief executive Som Seif isn’t fazed by the current volatility in cryptocurrency prices.
“People will sit there and say bitcoin is down 30 per cent, 50 per cent, 60 per cent ... but who cares? The reality is you have to look at these assets on what your five-year vision is for this area,” Mr. Seif said during an online investor conference last week.
“This is the same as any technology long-term play. If you bought Amazon in 2000, you probably would have been down and you would sit there and say what a terrible stock. But if you had a long-term vision for Amazon, you would have actually made a lot of money. I think over the next five to 10 years, [digital assets] have the opportunity to be the most important asset class of our time.”
Brian Mosoff, CEO of Ether Capital, echoed Mr. Seif’s outlook, saying the asset class is best suited for people who have a long time horizon.
“There’s no way to time this market,” Mr. Mosoff said at the conference. “... and it’s still very asymmetric and in early days.”
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Clare O’Hara