Unlike its neighbor to the south, which continues to procrastinate, Canada appears to be prioritizing crypto assets, as revealed last week by giving the green light to three new Ether (ETH) -based exchange-traded funds, the first in North America.
“Having an easily accessible ETF in Canada changes the competitive landscape“Campbell Harvey, a professor of international business at Duke University’s Fuqua School of Business, told Cointelegraph. The US Securities and Exchange Commission (SEC) will feel pressure to approve an ETF soon. cryptocurrency-based, perhaps in a few months, Harvey said.
“It is increasingly difficult to argue the exclusion of cryptocurrencies“He further explained, adding:”Consider an institutional investor who wants to have a well diversified portfolio. Of course, that portfolio would include names like Apple, with a $ 2 trillion market capitalization. But what about cryptocurrencies?“.
On April 17, Purpose Investments, Evolve ETFs and CI Global Asset Management received approval from Canadian regulators to launch Ether ETFs. This development, while viewed positively by the majority, still raises some questions.
How is an Ether ETF really different from a Bitcoin (BTC) ETF? Would it have the same target market or asset-under-management success as the Bitcoin ETF, for example, which has attracted 1.23 billion Canadian dollars ($ 983 million) since its debut in February? In this regard, how important are cryptocurrency-based ETFs as a class? Are they just a halfway point on the road to mainstream crypto adoption, which will likely be replaced over time by decentralized financial offerings?
Chris Kuiper, vice president of CFRA – a research and analysis firm – told Cointelegraph that both retail and institutional investors prefer to invest in cryptocurrencies “on a market capitalization-weighted basis,” so as not to try to pick winners and losers. Therefore, An ETF for Ether, the second largest cryptocurrency, is a bonus and “would allow them to start building this portfolio.”
But BTC and ETH could also drift in different directions.Kuiper added, and eventually, Ether could attract its own constituency. After all, “Many [inversores] are beginning to see Bitcoin as the monetary base layer or a gold 2.0 and even an alternative to the reserve assets of the corporate treasury“Kuiper noted, further explaining that for those who see Bitcoin as the” ultimate haven “of value,” they want the code to remain unchanged and transactions to remain slow. “He added:
“Proponents of Ethereum, however, look to Ethereum’s ability for programmable contracts – that is, smart tokens – and for all kinds of applications to be built on top of Ethereum. […] This is a very different point of view and these investors may not have any interest in Bitcoin, but they may have a lot of interest in exposing Ethereum as a kind of new platform. “
Som Seif, CEO of Purpose Investments, also seemed to see potentially broader uses for an Ether ETF, as a way to invest in a technology platform. He recently commented: “We are democratizing access to Ether, making the process of owning Ether easier than ever. We believe that Ether […] it is poised to continue its trajectory of growth and as an important utility technology and wider adoption as an investment asset. “
Jeff Dorman, chief investment officer at investment management firm Arca, told Cointelegraph that most investors nowadays they still don’t understand – or usually even know – Ethereum and how it differs from Bitcoin. That said, the market audience for BTC and ETH exchange traded funds are basically the same, in their opinion – that is, “those who are more restricted in their ability to buy digital assets directly.“This includes financial advisers and funds with equity mandates.
Will the Ether ETF fare as well as its BTC cousin?
As noted, the Bitcoin ETF has been a huge success in most cases. Will an Ether ETF attract the same attention?
Kuiper expects the Ether ETF from Purpose Investments “be successful in terms of asset raising as well, but you wouldn’t expect you to earn the same amount of assets as your Bitcoin ETF“. Bitcoin remains the flagship currency of cryptocurrencies, and although its dominance has recently declined, it still accounts for around 50% of the total market capitalization. Ether, in second place, is far behind, with only 12% to 13% of the market share. It would be expected that more or less the same proportions would remain with their respective ETFsKuiper said, adding:
“If you look at something like Grayscale’s fund in the United States, the value of assets under management for Bitcoin is over $ 40 billion, while ETH is just under $ 8 billion – or around of a fifth. So I would expect the value of the assets under management of the Ethereum ETF to level out probably to a quarter or a fifth of its sister Bitcoin ETF, but that should still be considered a success. “
Scott Freeman, co-founder and partner at JST Capital, told Cointelegraph: “We would not be surprised if ETH ETFs did well as well, but we expect it to be in proportion to the ratio of their market caps.“Regarding the attractions of both types of ETFs, Freeman said:
“There are many investors who want to have exposure to BTC and other crypto assets but want to do so through their current broker or money manager. In other words, they prefer not to use a cryptocurrency broker and that is where cryptocurrency-based exchange-traded funds they can help.”
Dorman told Cointelegraph that he also expects Ether ETFs to perform well, though primarily “because the world of equities is hungry for exposure to digital assets, and this will be another form of pure game to gain exposure without breaking with the traditional workflows of banks and brokers. “
Will the pressure on the SEC continue?
Will the SEC soon feel compelled to respond to Canada with similar approvals of its own? “The SEC does not have to do anything about Canada”Kuiper told Cointelegraph, “but I think they may feel some pressure to stay competitive and start approving or at least offering more details and guidance on a Bitcoin ETF – they now have at least eight different ETF applications from them.”
Kathleen Moriarty, lead attorney at Chapman and Cutler LLP, told Cointelegraph: “The SEC will no doubt take note that Canada has listed Bitcoin and Ethereum ETFs. Since we have relationships with Canada in the securities area, this will resonate more with the SEC than if a country with a new equity market were to list these ETFs.“With that said, Moriarty added:
“The SEC is not aware of the facts, issues, and decision-making processes of Canadian regulators and considers itself the world’s leading securities regulator. So you don’t want it to be seen as” sealing “a new product based on the example of another regulator.”
Harvey told Cointelegraph: “In the past, the SEC has resisted ETFs primarily because it feared manipulation of some of the dubious exchange prices. I think we have enough fully regulated and liquid exchanges in the US to mitigate those concerns.This, combined with a new agency chair, Gary Gensler, who “understands the space, means that it will likely be a matter of a few months before we have US-based crypto ETFs.”
But Gensler, who once taught a course on blockchain at MIT, might have other priorities. “Gensler is going to be very busy dealing with ESG [medio ambiente, social y gobierno corporativo], SPACs [compañías de adquisición de propósito especial] and market structure issues. Resolving existing problems may be higher on your to-do list than delivering a complex new product that could pose problems later on, “said Moriarty, who worked with Cameron and Tyler Winklevoss on the SEC’s first filing for a Bitcoin ETF in 2013 – which was rejected by the agency in 2017.
Another opinion shared with Cointelegraph by an expert who has wanted to remain anonymous is that The SEC is welcoming Canadian listings as you can now see “in real life” how these crypto funds actually work, if they cause problems, and to what extent the “customer experience” is positive.
“In my experience, US regulatory bodies have never been influenced by Canada.”Dorman told Cointelegraph. “ETFs still have years to go in the United States, because most of the issues raised by the SEC in its previous rejections have not been resolved.”
Another sign that cryptocurrencies have arrived?
However, from a global perspective, Can’t the recent approval of the Ether ETF in Canada be considered another indication that cryptocurrencies are entering the financial mainstream?
It further validates “that cryptocurrencies are here to stay,” Kuiper said, as “the market and infrastructure continue to expand.” And Harvey told Cointelegraph: “Cryptocurrencies are already part of the mainstream world. Coinbase’s IPO was the turning point. We will see more and more ETFs based on other currencies“.
But Harvey was more nuanced on the long-term impact of ETFs: “One big reason institutional investors have stayed away from cryptocurrencies until now is the issue of custody.“he said, adding:”They had no mechanism to store private keys. They did not want to take the risk of custody. ETFs solve these problemsLooking further, however, decentralized finance could sideline these funds. As Harvey noted:
“Why pay the commissions of an ETF when you can easily have the ‘physical’? The only problem that needs to be solved is that of custody, and the solution to that seems to be coming.”
Dorman agreed that the main benefit of these funds is the access they provide to investors who do not have the ability to buy and hold BTC and ETH directly. For them, “it’s a worthwhile service as long as the commissions are low“, but added this warning:
“Essentially, these products are serving traditional investor workflows rather than the other way around, which is helping investors understand and use new workflows to own and safeguard digital assets. Over time, most of these funds will be obsolete, but for now they are a necessary bridge. “