The raging success of the first Bitcoin fund shows who is leading the ETF market

The The buzzing success of the very first Bitcoin exchange-traded fund should come as no surprise to cryptocurrency fans. But if they don’t know about ETFs, the location may have been surprising.

The explosive debut of the Target Bitcoin ETF (ticker BTCC), whose trading volume approached $ 400 million worth of shares in two days, did not happen in the largest ETF market. Nor was it in Europe, where similar exchange-traded products have already amassed about $ 6.5 billion in assets, according to data gathered by Bloomberg.

It was actually in Canada – where the stock market is only 8% the size of the US and assets in ETFs total about $ 215 billion – less than the SPDR S&P 500 ETF Trust (SPY) on its own. It doesn’t register much outside of the ETF industry, but Canada has quietly built a reputation for this kind of coup.

“Canada has long been at the forefront of ETF product development,” said Ben Johnson, Morningstar Inc.’s global director of ETF research. “From listing the very first ETF to more recently the home of the very first psychedelics ETF.”

BTCC launched on the Toronto Stock Exchange on Thursday, the first fund of its kind in North America and first anywhere in the world to bear the ETF label. A day later, Evolve Fund Group’s Bitcoin ETF (EBIT) debuted, but with a less impressive trading volume of approximately $ 14.5 million in stock.

As with many areas of innovation, the decision of who or what was first in finance can come down to definition, but most would agree that the Toronto 35 Index Participation Fund, or TIPs, is the first iteration of a modern ETF in 1990. Although it has not enjoyed the astronomical growth of the US industry – which began with the launch of SPY in 1993 – the Canadian ETF market has often introduced products that have not been tried anywhere else.

Canada firsts	Year of launch
First ETF	1990
First fixed income ETF	2000
First marijuana ETF	2017
First SPAC ETF	2020
First psychedelics ETF	2021
First Bitcoin ETF	2021

The reason boils down to a more agile and liberal regulatory environment and a focus on innovation. For example, the Evolve fund was approved less than a month after an application was submitted.

“Canada has proven to have a process that drives innovation and the systems that make it possible,” said Som Seif, CEO of Purpose Investments.

In the US, the Securities and Exchange Commission has rejected multiple applications for a Bitcoin ETF concerns that prices can be manipulated and liquidity is insufficient. That has led investors to plow money into the Grayscale Bitcoin Trust (GBTC), a riskier and more expensive structure that is often traded at huge premiums to the value of the underlying assets.

“Canadian regulators seem much more willing to embrace innovation,” said Nate Geraci, president of the ETF Store, a consulting firm.

Read more: The $ 6 trillion ETF revolution started in Toronto 30 years ago

This is not to say that the ultra-rich, highly liquid US market is not innovating. The first of a new ETF format that hides its interests against front-funning – called active non-transparent funds – debuted in the US in April 2020.

“Canada has been ahead of us in some cases, but there are cases where the US is at the forefront,” said Ben Slavin, Head of ETFs for BNY Mellon Asset Servicing. “I wouldn’t necessarily generalize that the US is always behind, it’s just Bitcoin is an incredibly hot topic and it could be a special case.”

Meanwhile, there are plenty of industry watchers who would argue that Canada isn’t really the first for the Bitcoin ETF. In Europe there are several ETPs that behave almost exactly the same, the largest of which has been traded for over five years. Differences in regulations simply result in a different label.