Author:
hannah
Last Updated on:
28.09.2024
Table of Content
What is Bitcoin?
Bitcoin is the oldest, largest, and arguably most popular cryptocurrency in the world. As the most popular digital asset available to buy in Canada, it also happens to be the most valuable. Launched in 2009, bitcoin was billed as a decentralized virtual currency that could not be regulated by the government nor could the government interfere with its value. Low transaction costs and cross-border payments made bitcoin an ideal currency for the digital age.
In recent years the price of bitcoin has skyrocketed, despite some occasional drawbacks, and today it is regularly touted as the new gold – a genuine hedge against inflation. Bitcoin leverages advanced blockchain technology to irrefutably record transactional data, meaning that it cannot be reversed or altered in any way. The blockchain is both transparent and affords a high level of personal anonymity.
In 2021, bitcoin has displayed some intense volatility – including two massive bull runs resulting in the value of bitcoin topping $60,000 CAD!
What is an ETF?
Before we start talking about buying a bitcoin ETF, you’ll need to know what an ETF actually is. Don’t you worry – Crypto Parrot is here to save the day. So, let’s talk about ETFs. An ETF – or Exchange-Traded Fund – is an investment that tracks the performance of a specific asset or, sometimes, even a group of assets. This instrument is perfect for diversifying your portfolio without having to actually own the asset in question. For example, you could have a portfolio of shares and a bitcoin ETF. If you’re not looking for ownership, ETFs are a great alternative trading method.
So that means a bitcoin ETF basically follows the price of bitcoin and allows traders to buy the ETF without having to actually own any bitcoin. You’ll find buying a bitcoin ETF is a lot less effort and hassle than buying actual bitcoin from a cryptocurrency exchange in Canada too.
If you’re wondering why you haven’t really heard of bitcoin ETFs before, there is a good reason. Bitcoin ETF approval from regulatory agencies has historically been an uphill battle. The earliest attempts to launch a bitcoin ETF was in 2017 and the SEC rejected the attempts because bitcoin was traded on so many unregulated exchanges at the time. It is only this year in 2021, that the first ETF launched and it happened to be in Canada! Since then several other bitcoin ETFs have successfully followed suit.
Compare the best Bitcoin ETF trading platforms in Canada
eToro is a multi-asset investment platform. The value of your investments may go up or down. Your capital is at risk.
The First Bitcoin ETF in Canada
Purpose Bitcoin ETF (BTCC) is not only the first Bitcoin ETF in Canada but also the world. After years of trying to get regulatory acceptance, the Ontario Securities Commission approved the bitcoin ETF in February 2021, making it the world’s first.
The fund offers an unlimited number of both currency hedge and non-currency hedge CAD-denominated ETF units. There are also US Dollar units available. The cryptocurrency community rejoiced as it is another sign of further institutional acceptance of the virtual currency.
Since the launch of BTCC, two more bitcoin ETFs have managed regulatory approval; Evolve Bitcoin ETF (EBIT) and CI Galaxy Bitcoin ETF (BTCX). All three of these bitcoin ETF instruments are tradeable on the Toronto Stock Exchange. Our research determined that BTCX offered the lowest management fees of all three bitcoin ETFs in Canada. Performance of these bitcoin ETFs won’t be released until next year as they are still in their infancy.
The Difference Between an ETF and Buying Bitcoin
So to settle any confusion, our experts here at Crypto Parrot have explained the major differences between an ETF and buying bitcoin as an asset itself.
- Ownership – This one is simple. A bitcoin ETF has no actual ownership of bitcoin whereas buying bitcoin on a crypto exchange results in asset ownership.
- Different Fees – Considering bitcoin ETF purchases are on brokers whilst exchanges usually handle buying bitcoin you will encounter different types of fees. For example, a bitcoin ETF will have a management fee which we’ll explain more a bit later.
- No storage – An ETF is investing in the value of bitcoin, not bitcoin itself. So nothing to store or look after. If you were to buy bitcoin in Canada though, you would need a crypto wallet to store your cryptocurrency.
- Going short – Something buying bitcoin as an asset cannot do. You can short your bitcoin ETF shares when you feel a dip coming along.
How to Buy Bitcoin ETFs Canada?
So you’ve decided that a bitcoin ETF is the way to go in your cryptocurrency trading strategy. Awesome! Let Crypto Parrot guide you on how to buy Bitcoin ETFs in Canada. To get started you’ll want to review and research some online brokers in Canada that offer a bitcoin ETF. Our dedicated reviews have noted that BitBuy and NDAX offer a bitcoin ETF.
Registering at a broker is incredibly easy and you shouldn’t encounter any problems
- Head to the website or mobile app of your chosen bitcoin ETF broker and click sign up or register. This will start the process towards buying a bitcoin ETF in Canada.
- You’ll be required to provide some pretty basic personal information like name, address, means of funding, and contact details. You’ll be directed to create a password to complete the account registration.
- Next, you’ll need to follow the KYC procedure. This is standard and important for the brokers compliance with regulators, as well as your own safety online. You’ll need to provide copies of your ID and proof of address usually and they can all be uploaded online with ease. Make sure to take clear photos – you don’t want any delays.
- Once you are verified, you’ll have full access to the online broker and be free to buy bitcoin ETFs. Just fund your account through one of the accepted payment methods and you’ll be all set.
Benefits of Canadian Bitcoin ETF over Bitcoin Asset
You’re probably asking yourself, why not just buy bitcoin? Well, there really are a great number of advantages to trading bitcoin ETFs over buying bitcoin directly. We at Crypto Parrot like to make things easier for you, so we’ve compiled some of the biggest benefits of trading in Bitcoin ETFs rather than buying bitcoin outright.
Easy and Convenient – You can trade ETFs from a traditional broker or online broker. You won’t need to go through the security procedures required by cryptocurrency exchanges and you won’t have to worry about storing your bitcoin either. A bitcoin ETF simplifies the whole process since you won’t need a crypto wallet to store anything at all which is also a convenient security benefit since losing a wallet password means your bitcoin is inaccessible forever.
Diversification – ETFs are extremely versatile instruments. In fact, an ETF can hold more than one asset type. That means your bitcoin ETF could also comprise Tesla stock. This is a great way to diversify your portfolio and mitigate risk too while trading on a regulated market exchange would allow you to diversify an existing equity portfolio too.
Short bitcoin – Possibly the most important difference between bitcoin ownership and an ETF, since a bitcoin ETF is an investment vehicle, you can actually short sell the ETF. So if you think the price of bitcoin is about to take a serious dive, you can trade against it. You cannot do that with a traditional purchase of bitcoin.
You can still own bitcoin – You can still go out and buy bitcoin if you decide you want to own the crypto. Better still if you truly believe in bitcoin but have good beads on the market, you could own the cryptocurrency and short it as an ETF when a bear run is on the cards. You see, there are plenty of ways to take advantage of crypto volatility!
Regulated – Yes, the best cryptocurrency exchanges are regulated but cryptocurrencies themselves are not. That means there is far more security and insurance protection in place when trading with a bitcoin ETF. Also with market regulation comes eligibility for tax efficiency.
Cons
Management Fees – A bitcoin ETF in Canada will have an associated management fee. This is to recover some money for the convenience that is offered but it can be a significant charge if you own a large number of shares in a bitcoin ETF. If those shares are held over a long period, the management fees could really stack up.
Inaccurate Pricing – As you now know, an ETF tracks the price of bitcoin, but you could also have multiple assets in an attempt to diversify your portfolio. So if the price of bitcoin rises by 25%, that rise may not be accurately reflected in your ETF due to the other assets you hold.
Lack of ownership – Both a benefit and a disadvantage depending on your point of view. In 2021, bitcoin is widely considered to be a store of wealth and a hedge against inflation – basically gold in the 1970s. Therefore bitcoin may be considered a way to mitigate the risks normally found within the traditional financial system. Also since a bitcoin ETF is government regulated, you won’t benefit from the decentralized concept of cryptocurrency.
Market Hours – The cryptocurrency market is 24/7, 365! It never sleeps. Many consider this to be a great advantage of cryptocurrency trading. However, you can only buy a bitcoin ETF during regular market hours of the Toronto Stock Exchange since a bitcoin ETF is not actual bitcoin.
Conclusion
There really is more than one way to buy bitcoin in Canada. In 2021, Canadian investors are lucky enough to buy the world’s first bitcoin ETF. Offering a way to invest in the value of bitcoin with none of the hassle of actual ownership, the bitcoin ETF is an excellent way to diversify your portfolio. As we move forward, more bitcoin ETFs are sure to follow, especially if the US SEC approves a bitcoin ETF.
So, find your perfect online broker, fund your bitcoin ETF trading account and now you can buy shares in three different bitcoin ETFs in Canada. For more ways to buy bitcoin in Canada, be sure to check out our other bitcoin guides at Crypto Parrot.
Compare the best Bitcoin ETF trading platforms in Canada
eToro is a multi-asset investment platform. The value of your investments may go up or down. Your capital is at risk.
How to Buy Bitcoin ETFs Canada FAQ
More Articles
