Can I Buy a Bitcoin Spot ETF in Canada?

The tailwind for the world’s largest cryptocurrency started gathering in January when the US Securities & Alternate Fee greenlit the sale of US-domiciled spot bitcoin ETFs. The transfer generated pleasure north of the border, although Canada had a three-year head begin in the bitcoin ETF market.

Canadians Have the Better of Home and US Bitcoin ETFs

Canadians have been investing in crypto ETFs (together with bitcoin spot ETFs) for years. In February 2021, Canada turned the first country to approve these funds. The Goal Bitcoin ETF was the pioneer, adopted rapidly by the likes of the CI Galaxy Bitcoin ETF and Constancy Benefit Bitcoin ETF. Right now, Canadian buyers have entry to almost three dozen crypto-themed ETFs, together with ones monitoring ethereum, the second-largest cryptocurrency.

Canadian cryptocurrency ETFs grew their property below administration from C$5.22 billion in September 2024 to C$5.68 billion in October—a notable 8.8% improve—fueled by renewed investor curiosity and confidence in digital currencies. With bitcoin nearing USD 100,000, bitcoin ETFs are anticipated to proceed to see sturdy inflows. Bitcoin notched a file excessive of USD 99,605 on Nov. 22, marking a staggering 125.17% achieve this yr. For the reason that US presidential election, it has soared by roughly 44%.

Canadian buyers seeking to play the development with ETFs have choices past home names; they will additionally make investments in greater than 30 US-domiciled ETFs by way of their buying and selling accounts. In the US, spot bitcoin ETFs have quickly change into the fastest-growing ETF class ever. Their recognition has paved the way for ethereum-tracking ETFs in the US, additional enriching choices for Canadian buyers.

Added Benefits for Canadian Traders

In Canada, bitcoin ETFs have the additional advantage of being eligible for tax-advantaged accounts like RRSPs and TFSAs. They’ll develop and withdraw their bitcoin-related investments tax-free with TFSAs and in a tax-sheltered manner with RRSPs. With RRSPs, buyers can declare a tax deduction for contributing to the account and have their investments develop in a tax-deferred style. Nonetheless, if that funding incurs a loss, you possibly can’t declare it as a capital loss.

Canadians should additionally contemplate the influence of foreign money fluctuations when investing in unhedged merchandise or US-dollar-denominated ETFs. A declining Canadian greenback can improve returns on US-dollar-based investments when repatriated. Conversely, returns might shrink if the loonie strengthens in opposition to the buck. Foreign money-hedged bitcoin ETFs can take away uncertainty associated to change price fluctuations.

ETFs vs. Spot ETFs

Bitcoin ETFs and bitcoin spot ETFs differ in their underlying property and the way they observe bitcoin’s worth. “A bitcoin spot ETF straight holds bitcoin in its portfolio,” explains Michael Zagari, funding advisor and affiliate portfolio supervisor at Wellington-Altus Personal Wealth. “The worth of the ETF strikes in line with the present market worth [the spot price] of bitcoin.” This direct publicity ensures a spot bitcoin ETF’s efficiency carefully mirrors the digital foreign money’s worth actions (minus administration charges and related prices). Investing in a spot ETF is akin to proudly owning bitcoin itself.

Alternatively, artificial bitcoin ETFs present publicity by derivatives like futures contracts. These ETFs, which don’t straight maintain bitcoin, make investments in bitcoin futures contracts—agreements to purchase or promote the cryptocurrency at a predetermined worth on a future date. Such a fund’s worth “is determined by the futures market quite than the spot worth [of bitcoin],” explains Francis Sabourin, portfolio supervisor and funding advisor at Francis Sabourin Wealth Administration, Richardson Wealth Restricted.

Sabourin cautions that this may consequence in monitoring discrepancies attributable to market phenomena like contango or backwardation. Contango happens when futures contract costs rise above spot costs, whereas backwardation is when the alternative occurs.

Lined name bitcoin ETFs supply one other route. They “present a balanced strategy for bitcoin buyers by combining the potential for capital appreciation with the advantage of yield technology,” says Zagari.

Canadian Cryptocurrency Regulation

Canada has proactively regulated cryptocurrencies, balancing fostering innovation and defending buyers. The regulatory framework is multifaceted, with key roles performed by the Monetary Transactions and Studies Evaluation Centre of Canada and the Canadian Securities Administrators.

“Canada has issued tips for crypto asset buying and selling, with the CSA specializing in platforms that facilitate cryptocurrency transactions, guaranteeing they adjust to securities legal guidelines when vital,” says Sabourin. The regulators periodically review crypto funds to make sure enough liquidity, safe custody preparations, and structural soundness, safeguarding buyers whereas sustaining entry to digital property.

Canada’s regulatory panorama will doubtless evolve as cryptocurrency adoption broadens. “Proposed adjustments embody stricter guidelines round custodianship and limits on which sorts of funding funds can maintain crypto property,” says Sabourin. “There are ongoing discussions concerning the want for particular rules for stablecoins and different crypto property outdoors of the standard securities legal guidelines, signaling additional refinements in the regulatory surroundings.” As oversight improves, it’ll foster higher confidence amongst buyers in crypto and crypto-related property, together with ETFs.

The Inherent Dangers of Cryptocurrency Investing

Regardless of its hovering recognition, bitcoin stays a extremely risky and speculative funding. Dan Kemp, chief analysis and funding officer at Morningstar, cautions in opposition to counting on short-term worth surges. “The dramatic change in worth underscores the problem of estimating the truthful worth of an asset that’s primarily a car for hypothesis,” Kemp says. In contrast to conventional investments, reminiscent of shares or bonds, which generate money flows or curiosity, bitcoin’s valuation is much much less tangible. “As an investor, it’s value contemplating the worth you’ll ascribe to an asset in the event you needed to personal it for an prolonged interval with out the choice to promote,” Kemp advises.

ETFs usually are not immune from wild and unpredictable worth actions—a core attribute of cryptocurrency. “It’s no totally different than another new, revolutionary, and rising expertise, so the trail is often risky,” notes Zagari, including that “something can go fallacious in the quick time period.” Additional, the custodial security of crypto property continues to be a concern, particularly when personal keys are misplaced, stolen, or hacked. Nonetheless, “this situation has been considerably mitigated with the introduction of bitcoin ETFs, which permit buyers to outsource custodial dangers,” says Sabourin.

For these causes, specialists stress that buyers ought to fastidiously calibrate their publicity to bitcoin, “Particularly if they can’t afford to lose their capital or endure vital losses,” Zagari says. These in search of bitcoin publicity must be ready to endure vital losses and keep away from making huge bets in pursuit of in a single day riches.

The creator or authors don’t personal shares in any securities talked about in this text. Discover out about Morningstar’s editorial policies.