The proliferation of spot (physically backed) Bitcoin and Ether ETFs in Canada is a prime example of how our regulatory landscape has actually been more permissive and innovative compared to our American neighbours.
While Canadians have enjoyed the availability of a spot Bitcoin ETF since 2021, the U.S. market has had no such luck, being limited to close-ended trusts or futures-based "Bitcoin strategy" ETFs.
However, fortunes may be shifting for the U.S. market after a recent series of prospectus filings, notably by BlackRock (NYSE:BLK), one of the largest asset managers. Here's all you need to know about the current Bitcoin ETF landscape and how developments in the U.S. could affect Canadian listings.
SEC’s approval of Bitcoin ETF: What's going on in the U.S.?
The feud between the SEC and various asset managers over the legality of a spot Bitcoin ETF is not anything new. As far back as June, digital asset managers like Grayscale were already embroiled in legal action after the SEC denied the conversion of their close-ended trust into an open-ended ETF.
During this time, the reputation of the crypto industry was being pummelled by numerous high-profile incidents and scandals, such as the collapse of Terra/Luna, the bankruptcy of FTX and the arrest of Sam-Bankman Fried, and the failure of exchanges like Celsius and Voyager.
On June 5th and 6th, 2023, the SEC would further ramp up the pressure by charging major cryptocurrency industry players. Notably, Coinbase (NASDAQ:COIN) was charged for operating as an unregistered securities exchange, broker, and clearing agency, while Binance.US and Binance CEO Changpeng Zhao had 13 charges levied against them for operating as an unregistered exchange, broker-dealer, and clearing agency, misrepresenting trading controls and oversight, and offering/selling unregistered securities.
That being said, some positive developments also took place. On Friday, June 23rd, the SEC approved the first leveraged Bitcoin futures ETF. As a result, the Volatility Shares 2x Bitcoin Strategy ETF (BITX) is officially launched on the on the Chicago Board Options (CBOE) BZX Exchange on Tuesday, June 27th.
Finally, there's the prospectuses filed by BlackRock for the spot, physically backed iShares Bitcoin Trust, which was followed by competitors like Invesco, WisdomTree, and Bitwise. Currently, most industry insiders and experts are predicting success for BlackRock, citing the firm's formidable track record of approvals and their strong influence.
What does this mean for Canada?
As noted earlier, spot Bitcoin (and Ether) ETFs have been available on the Canadian market since 2021 (see all Bitcoin ETFs listed in Canada here). Asset managers like Purpose Investments, 3iQ, CI Global Asset Management, and Evolve ETFs took great risks to launch these products, and they have survived to this date.
Currently, these products are also one of the few ways U.S. investors can get access to spot Bitcoin ETFs, thanks to the availability of ".U" versions, which are denominated in U.S. dollars. Examples include the CI Galaxy Bitcoin ETF (BTCX.U), Purpose Bitcoin ETF (BTCC.U), Evolve Bitcoin ETF (EBIT.U), and the 3iQ CoinShares Bitcoin ETF (BTCQ.U).
By buying these Canadian-listed, U.S. dollar denominated ETFs, U.S. investors can obtain spot Bitcoin exposure without converting currency or relying on often pricier close-ended funds that can trade at substantial discounts or premiums to their net asset value (NAV).
Logically, I think that the approval of a spot Bitcoin ETF by a prominent U.S. asset manager will likely affect these ETFs, perhaps leading to an outflow of investor assets. BlackRock's reputation and track in the U.S. is a significant factor as to why ETF investors buy their lineup. In comparison, the Canadian firms, while reputable and solid, are relatively unknown down south.
At the very least, I expect the assets under management (AUM) possessed by the ".U" versions of these ETFs to shrink should the SEC approve BlackRock's prospectus. After all, if a U.S.-listed spot Bitcoin ETF is approved, American investors will have little incentive to cross the border anymore.
This content was originally published by our partners at the Canadian ETF Marketplace.