TORONTO — The price of Bitcoin hit highs this week not seen in more than two years after a U.S. regulator approved 11 exchange-traded funds linked to the cryptocurrency, prompting calls that it's a new era for digital money, but also for caution among investors.
In approving the ETFs by the likes of BlackRock Inc. and Franklin Templeton, U.S. Securities and Exchange Commission chair Gary Gensler said the move does not mean any approval or endorsement of the cryptocurrency.
"Investors should remain cautious about the myriad risks associated with bitcoin and products whose value is tied to crypto," he said in a statement Wednesday.
The latest news does little to alter the equation on whether to invest in the cryptocurrency, said Sadiq Adatia, chief investment officer at BMO Global Asset Management.
"Nothing has changed from the reason of why you would want to own it, or why you wouldn't want it."
The option does make it easier and cheaper for U.S. investors to buy into bitcoin, helping drive more interest, he said. But Canadian investors have had the option of buying bitcoin ETFs since 2021.
The U.S. approvals will likely make it cheaper for Canadian investors as the competition drives down management fees, he said.
Already, Fidelity Investments Canada announced Thursday that it has reduced its fee from 0.95 per cent to 0.44 per cent, effective Friday, on its Fidelity Advantage bitcoin ETF. Meanwhile, Blackrock has come out of the gate with one of the cheapest options, available at 0.12 per cent for the first year.
Adatia said that while the ETF option is more straightforward, investors still need to be careful because it remains volatile.
Bitcoin swung up roughly five per cent to almost US$49,000 on Thursday, the first day of U.S. ETFs trading, before giving up much of those gains, hovering around US$43,500 as of midday Friday.
The cryptocurrency traded around US$16,000 in December 2022 and peaked at over US$68,000 in October 2021.
"It has these big swings that not a lot of investors are able to handle," Adatia said. "When you have extreme movements, people get in at the wrong time, and people get out at the wrong time."
He said those considering a bitcoin investment should plan for a long-term horizon and be able ride out the bumps in the road.
Others see the approvals as more significant for bitcoin and the crypto-blockchain space more generally.
"For sure it's a watershed moment for the industry and the asset class. With an ETF approval, bitcoin sort of enters the financial firmament," said Alex Tapscott, managing director of the digital asset group at Ninepoint Partners.
The launch of the U.S. ETFs, and major asset managers talking to their clients about them, could help reset the conversation around the asset and the potential of the technology behind it.
"If anything, some of the most meaningful and most impactful things are yet to come," he said.
While not offering investment advice, he said Ninepoint's perspective is that some digital asset exposure is very useful as part of a well-diversified portfolio.
Ninepoint has diversified its own offerings, converting an early pure-play bitcoin ETF into a wider portfolio last year to cover a range of blockchain-linked companies along with exposure to bitcoin and ether.
"As the industry matures, and as the asset class grows, taking a portfolio approach is a much more sensible route than owning any single asset on its own, right?"
In terms of a valuation for bitcoin, Tapscott said it's difficult to pin down, but ultimately comes down to how useful it is as a store of value, and as a medium of exchange.
Bitcoin's market valuation of around US$1 trillion is still only something around a tenth the size of gold's, while offering numerous advantages for the digital economy, he said.
The launch of gold ETFs in the early 2000s led to a notable increase in the asset class, and he expects to see a similar effect with bitcoin with already more than US$4.5 billion traded in the new offerings.
There are some notable differences between betting on precious metals and cryptocurrency that Gensler highlighted while approving the bitcoin-based exchange-traded products (ETPs).
"The underlying assets in the metals ETPs have consumer and industrial uses, while in contrast, bitcoin is primarily a speculative, volatile asset that’s also used for illicit activity including ransomware, money laundering, sanction evasion, and terrorist financing," he said.
And while interest is high, some major asset managers in the U.S. have decided to stay on the sidelines.
Vanguard, for example, said it is not launching a bitcoin ETF, saying in a statement that spot bitcoin ETFs will not be available for purchase on its platform.
"Our perspective is that these products do not align with our offer focused on asset classes such as equities, bonds, and cash, which Vanguard views as the building blocks of a well-balanced, long-term investment portfolio."
This report by The Canadian Press was first published Jan. 12, 2024.
Ian Bickis, The Canadian Press
