Opinion: Purpose Investments Bitcoin ETF - The Answer to Today’s Bitcoin Frenzy
How many times have you seen the word ‘Bitcoin’ in the past month? From coverage in popular financial publications including CNBC to Reddit discussions and Tesla buying $1.5B in Bitcoin and announcing that it will start accepting Bitcoin payments, the world’s most popular cryptocurrency’s price has recently surged to upwards of US $56,000 per coin and a market cap of US $1T. On Feb. 18, 2021, Toronto-based Purpose Investments launched Purpose Bitcoin ETF (BTCC), the first of its kind, to make investing in Bitcoin even more accessible.
Although we do not offer investment advice, we believe this ETF is interesting from a financial product point of view. Here are our thoughts.
It provides investors a frictionless way to get exposure to Bitcoin. Purpose Bitcoin ETF can be bought from your brokerage account, the way you would buy any other stock or ETF.
It provides extra security. When an investor purchases BTCC, Purpose Investments buys Bitcoin, and stores it in cold storage - physical storage that’s disconnected from the internet. This provides an additional layer of security compared to a fully digital crypto wallet and is less susceptible to breaches. In addition, Purpose’s custodian Gemini has insured its assets for up to $200M against theft. Purpose also lists on its website the percentage of its holdings that were in a cold vs. hot storage crypto wallet.
It’s eligible for registered accounts. One can now hold Bitcoin in their TFSA or RRSP accounts in Canada. Both accounts offer tax advantages. If held in RRSP, one can use a tax deferral strategy, as pre-tax income can be used to purchase BTCC.
It put an unregulated digital asset on a regulated exchange, the Toronto Stock Exchange. This necessitates conforming to a rigorous set of regulatory requirements and reporting for managing the fund, as compared to unregulated exchanges. That also contributes to making Bitcoin more mainstream as an alternative asset.
The ETF has a 1% management fee. This fee is higher than those of other ETFs that Purpose Investments offers. The target market appears to be investors who want an easy way to take a position in Bitcoin to diversify their portfolio or include it in their registered accounts. On the other hand, investors who already purchase Bitcoin through a crypto wallet may want to consider using their existing crypto wallet and skip the management fee.
We believe that another thing makes the Purpose Bitcoin ETF interesting: it creates interoperability between financial exchanges and ecosystems. Previously, an investor would have had to go to two different places to invest in a stock and also in a cryptocurrency, as seen in the illustration below. This means more accounts to manage, different exchange and platform rules to become familiar with, and more security risks. With the Purpose Bitcoin ETF, the investor can go to one place to manage their investments: their brokerage account. That makes your investments consolidated. You also don’t have to manage the security aspects of storing cryptocurrency on your own. You’re using a familiar interface and can track your Bitcoin investment’s performance against your other investments using the same interface and analysis tools you’re already using. It makes the whole experience more familiar and standardized.
A part of our thesis at Altitude Consulting is that there will be more standardization in the financial services industry. We wrote about standardization in detail in our article Open Banking - A Practical Framework for Adoption. The Purpose Bitcoin ETF is yet another example of this trend towards standardization and interoperability.
We anticipate that new alternative investments will appear on regulated exchanges in the future. In the crypto space, it’s reasonable to expect new ETFs to be created with multiple cryptocurrencies as their constituents. Similar to equity ETFs, this would provide further diversification to investors. There may also be other similar ETFs that will be launched by competing investment firms. The ability to access these investments, related news, and analysis from brokerage accounts and trading platforms will create a more fluid, consistent customer experience. Further, open banking standards will be developed and expanded to make those integrations easier. We’re excited for what’s to come.