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.
While other markets have surpassed the US in innovation, none can compete with the size and scale of the US market when it finally competes.
Canada may have launched the very first ETF, but the US market is now about 27 times the size. There’s about $ 70 billion in Canadian bond ETFs – south of the border, it’s $ 1.1 trillion and up.
If and when a Bitcoin ETF finally arrives in the US, growth could be explosive. The closest alternative, the Grayscale Bitcoin Trust, has approximately $ 34 billion in assets. In fact, investors are willing to pay a 7.5% premium to get in right now, and the average premium over its lifetime is 37%.
That, according to proponents, is another reason to approve an ETF.
“I’m surprised we still don’t have a Bitcoin ETF in the US,” said Geraci of the ETF Store. “Understandably, there can be a difficult balance between embracing innovation and ensuring proper investor protection. But given the existing Bitcoin products available to US investors, a Bitcoin ETF seems to strike that balance. “
– With the assistance of Olivia Raimonde, Tom Lagerman and Divya Balji