If you were to pick a word that best encapsulates the experience of the past few years, it might be “disruptive.”

One disruptive trend that seems to have caught many investors’ attention: cryptocurrency ETFs. Canada introduced the first set of cryptocurrency ETFs in the world in February. Since then, this ETF category has seen exponential growth, gathering nearly $4.6 billion in assets under management as of August 31.

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Other countries are attempting to catch up: in the U.S., 16 Bitcoin ETF prospectuses have been filed with the Securities and Exchange Commission. In August, a French asset manager was granted approval to launch an ETF for European investors with a correlation to the price of Bitcoin using a basket of securities. To date, however, Canada remains the only country to have successfully launched futures-based and direct cryptocurrency ETFs, as well as inverse options.

 “Cryptocurrencies have captured investors’ attention for a variety of reasons. For one, they represent a new zeitgeist for financial markets — a ‘new gold’ that is digital, decentralized and non-correlated to traditional asset classes,” said Hans Albrecht, vice-president and portfolio manager with Horizons ETFs Management (Canada) Inc. “But perhaps what’s caught most investors’ attention has been the performance. We’ve seen the outsized return potential of cryptocurrencies, albeit with significant volatility risks. For Canadian investors, ETFs have become the easiest way to chase that potential and get exposure fast to popular cryptocurrencies like Bitcoin and Ethereum.”

The advent of the ETF option offered investors a liquid, safer and truer-to-NAV way to get exposure.

Another benefit of the ETF model versus buying cryptocurrencies directly: ETFs are eligible for use in registered investment accounts, including TFSAs and RRSPs. Bitcoin has returned more than 400% since Sept. 2020, and tax-free and registered accounts offer a potent vehicle for storing your cryptocurrency exposure.

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“While many investors ultimately want exposure to Bitcoin or other cryptocurrencies, another option that more risk-averse investors have sought out is to own the ‘picks and shovels’ for these mineable digital currencies,” said Albrecht.

“There is a growing ecosystem enabling these cryptocurrencies to function, whether it’s the digital exchanges that they trade on, the blockchain and cloud computing infrastructure that enables the transactions or even the hardware, from GPUs [graphic processing units] to semiconductors needed to mine and power them. Many of these sub-sectors and companies see some correlation to the prices of cryptocurrency, but may provide more of a safety-net given their diversified business operations.”

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