Your Guide to Investing in Cryptocurrency ETFs

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One of the most exciting things to happen to the financial markets in 2021 is cryptocurrency ETFs made their debut in Canada. This is an exciting investment opportunity for Canadians who want to take a position in crypto, but found trading directly on a cryptocurrency exchange intimidating or confusing.

There are now multiple Bitcoin ETFs and Ether ETFs available for trading on the Toronto Stock Exchange. This allows you to invest in Bitcoin and Ether through your brokerage account. Not only is this easier than signing up for and trading on a cryptocurrency exchange platform, but it also allows you to tax-shelter your crypto positions in registered accounts like the TFSA or RRSP for the very first time.

Is there a cryptocurrency ETF?

There are multiple Bitcoin and Ethereum ETFs available for trading on the TSX.

At present, there is not yet a single ETF that invests in both Bitcoin and Ether. There is also not yet any cryptocurrency ETFs for alt-coins. Cryptocurrency ETFs are still very new, and therefore the offerings are limited. However, as cryptocurrency continues to become more mainstream, we can expect to see more crypto ETFs listed on the stock exchange.

The current cryptocurrency ETF Canada providers are:

Because each cryptocurrency ETF invests in either Bitcoin or Ether and nothing else, there’s not really a lot of difference between one ETF provider and another. To choose what cryptocurrency ETF is best for your portfolio, make sure to compare their fees. Since they are all investing in the same asset with more or less the same strategy, management fees are the main differentiator.

At this point, the cryptocurrency ETFs are brand new so their total MER (management expense ratio) is unknown. The MER includes both the management fee plus additional administrative costs of running the fund. Right now the ETF providers do disclose their management fee, which ranges from 0.40% to 1.0%. You can expect the total MER of each to be slightly higher than that number once all the other costs are factored in.

What is an ETF?

The letters ETF stand for Exchange Traded Fund. This is a type of financial security that trades on the stock exchange, like a stock. However, unlike a stock, ETF shares represent parts of a fund, not shares of a company.

ETFs are considered awesome ways to readily diversify your investment portfolio at a very low cost, because a single ETF typically holds hundreds or even thousands of individual stocks. However, in the case of cryptocurrency ETFs, they only hold a single asset: either Bitcoin or Ether.

Cryptocurrency ETFs do not provide any diversification across multiple assets. This isn’t necessarily a bad thing, but it is something that you need to understand. Reducing volatility through diversification is usually the primary benefit of investing in ETFs, but you do not get that benefit with cryptocurrency ETFs.

Hopefully in the near future true cryptocurrency ETFs emerge that hold multiple cryptos so when you buy shares of an ETF, you’re buying shares in Bitcoin, Ether, and alt-coins.

What is a good Bitcoin ETF?

Here’s how the Bitcoin ETFs compare:

ETFTickerManagement Fee
Purpose Bitcoin ETFBTCC.TO1.00%Buy Now
Evolve Bitcoin ETFEBIT.TO0.75%Buy Now
CI Galaxy Bitcoin ETFBTCX.TO0.40%Buy Now

How to buy the Bitcoin ETF

  1. Open an account with a discount broker like Questrade where it is free to buy ETFs
  2. Make sure to choose a TFSA or RRSP to tax-shelter your investment!
  3. During market hours, log on to the trading platform and search for the Bitcoin ETF of your choice
  4. Select the number of shares you want to purchase and click Buy
  5. Confirm your trade

Voila! You know own shares in a Bitcoin ETF.

What is a good Ethereum ETF?

Here’s how the Ether ETFs compare:

ETFTickerManagement Fee
Purpose Ether ETFETHH.TO1.00%Buy Now
Evolve Ether ETFETHR.TO0% (until May 31st, then 0.75%)Buy Now
CI Galaxy Ether ETFETHX.TO0% (until June 15th, then 0.40%)Buy Now

How to buy the Ether ETF

  1. Open an account with a discount broker like Questrade where it is free to buy ETFs
  2. Make sure to choose a TFSA or RRSP to tax-shelter your investment!
  3. During market hours, log on to the trading platform and search for the Ether ETF of your choice
  4. Select the number of shares you want to purchase and click Buy
  5. Confirm your trade

Voila! You know own shares in a Ether ETF.

Buying a cryptocurrency ETF vs investing directly in cryptocurrency

Investing in a cryptocurrency ETF is very different than buying cryptocurrency directly, and should not be considered a substitute for owning actual Bitcoin or Ether.

Pros of buying a Cryptocurrency ETF

Easy! If you already have a brokerage account, buying shares of a cryptocurrency ETF is as easy as buying shares of any other stock or ETF.

Tax-sheltered. Because you can buy shares of cryptocurrency ETFs within your TFSA or RRSP, you can tax-shelter your position in crypto. This makes your capital gains in cryptocurrency tax-free or tax-deferred, depending on the account you choose.

No trading commissions. If you use a discount brokerage like Questrade, you will pay no trading commissions to purchase ETFs. This is much better than cryptocurrency exchange platforms which charge anywhere from 0.40% to 2% to buy and sell cryptocurrency, as well as additional withdrawal fees!

Secure. Your brokerage account must meet rigorous security standards, and your investment balance is insured against theft. Investors do not enjoy this type of security on cryptocurrency exchange platforms, which are uninsured and vulnerable to hackers.

Cons of buying a cryptocurrency ETF

Financial exposure only. Because you do not own the crypto underlying the fund directly, you only gain financial exposure to Bitcoin or Ethereum. There are many benefits of cryptocurrency beyond its financial upside that you unfortunately miss out on only own shares of an ETF.

Limited to trading during stock market hours. Because cryptocurrency does not belong to one country, it can be traded at all hours and every day. Sometimes dramatic price swings happen on weekends or in the middle of the night. If you own shares in a cryptocurrency ETF, you will not be able to buy or sell shares outside of market hours.

Do not own your coins. When you buy shares of a cryptocurrency ETF, you do not own the underlying assets. You cannot transfer the cryptocurrency coins to a personal wallet, and you cannot use them for transactions.

Should you invest in a cryptocurrency ETF?

The short answer is yes, you should invest in a cryptocurrency ETF. I recommend investing 1% to 3% of your total portfolio in each of the Bitcoin and Ether ETFs. I also strongly suggest you invest directly in the actual coins for both Bitcoin and Ether using a cryptocurrency exchange platform.

The best cryptocurrency exchange platform to buy Bitcoin and Ether is Shakepay. If you’re looking to invest in altcoins like Dogecoin, Litecoin, or Dash, then Coinsquare is your best bet! We compare the best cryptocurrency exchange platforms in Canada here.

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