Fidelity Set to Launch Spot Bitcoin ETF in Canada

key takeaways

Fidelity Advantage Bitcoin ETF will join several other spot offerings in Canada, such as Purpose Investments’ fund that hit the market in February
Growing number of spot bitcoin ETFs in Canada likely won’t change US regulators’ stance on such products, ETF Trends Managing Editor Lara Crigger says

Fidelity Investments’ Canadian subsidiary is getting set to launch an ETF that would invest directly in bitcoin.

The Fidelity Advantage Bitcoin ETF (FBTC), which carries a management fee of 40 basis points, will invest primarily in bitcoin directly, according to a prospectus published on Nov. 22. It may also purchase derivatives that provide economic exposure to bitcoin, but any use of derivatives will be “incidental” to the ETF’s primary investment strategy, the document adds.

The fund is expected to launch “on or around” Thursday, a Fidelity spokesperson told Blockworks and will be listed on the Toronto Stock Exchange.

Fidelity began research and development efforts into blockchain technology in 2014 through the Fidelity Center for Applied Technology.

“We believe that cryptocurrency is a valid asset class that we would like to provide as an investment option for retail investors in Canada by including this in our product offering,” the spokesperson said. “As to why now, we wanted to offer a front-to-back Fidelity solution with solid regulatory grounding.”

The ETF’s custodian, Fidelity Clearing Canada, recently got approved as the first digital assets custodian regulated by the Investment Industry Regulatory Organization of Canada (IIROC). The fund’s bitcoin sub-custodian will be Fidelity Digital Assets, which is the custodian of Fidelity’s Wise Origin Bitcoin Index Fund, a limited partnership launched last year that is available to qualified investors in the US.

Bloomberg Intelligence ETF Analysts Eric Balchunas and James Seyffart highlighted the upcoming ETF launch in Twitter posts this week.

Balchunas noted that Fidelity “will easily be the biggest asset manager to date with a bitcoin ETF,” while Seyffart called the impending launch “sneaky big news.”

Fidelity’s total discretionary assets totaled nearly $4.3 trillion as of the end of September, while its assets under administration were $11.1 trillion. The parent company of the Fidelity Advantage Bitcoin ETF issuer reported having about 31 million retail accounts at the end of the third quarter.

Purpose Investments launched Canada’s first bitcoin ETF — the Purpose Bitcoin ETF (BTCC) — in February, and the offering crossed $1 billion (CAD) in assets under management within its first month of trading.

“While I think that some institutional money will undoubtedly come off the sidelines due to the strength of Fidelity’s heavyweight brand, I’m not so sure it will actually pull away much in the way of assets from the existing ETFs,” said Lara Crigger, managing editor of ETF Trends. “History has shown us time and again that first-mover status is profoundly powerful marketing.”

Purpose’s BTCC now has $1.8 billion (CAD) assets under management. The Evolve Bitcoin ETF (EBIT), which launched a day later, has about $200 million (CAD) in assets.

Fidelity’s new physically backed bitcoin ETF is the latest to launch around the world while the US Securities and Exchange Commission (SEC) have not yet approved such a product.

The agency rejected fund group VanEck’s proposal for a spot bitcoin ETF earlier this month. Fidelity applied with the SEC to launch a bitcoin trust in the US in March.

The growing number of bitcoin ETFs in Canada likely won’t catalyze US regulators to change its stance or quicken its timeline, Crigger told Blockworks.

“I know hope springs eternal, but the SEC’s been pretty firm that futures-based ETFs — and bitcoin futures, specifically — are the first and only crypto instrument that they’re comfortable with,” she said. “I can’t foresee that changing any time soon.”

Canada crypto ETF landscape broadens

Purpose expanded its crypto offerings after the launch of BTCC, adding the Purpose Ether ETF (ETHH) in April. It added three more products this week: the Purpose Bitcoin Yield ETF, the Purpose Ether Yield ETF, and the Purpose Crypto Opportunities ETF.

The Crypto Opportunities ETF, subadvised by the Canadian business of Neuberger Berman, a firm with $437 billion of assets under management as of the end of Q3, invests primarily in digital assets and securities that provide exposure to the space.

The yield ETFs invest indirectly in long-term holdings of bitcoin and ether mainly through units of the Purpose Bitcoin ETF and the Purpose Ether ETF. In order to generate additional returns and enhance the portfolio’s income, the managers may write covered call options and cash-covered put options in respect of the securities held by the funds, according to the funds’ prospectuses.

The Purpose Bitcoin Yield ETF and the Purpose Ether Yield ETF seek to provide unitholders with monthly distributions.

“With these ETFs, we aim to expand the ways investors can access crypto markets and generate the unique returns available in this emerging asset class,” Som Seif, Purpose Investments founder and CEO, said in a statement.

As bond yields remain low and income gets harder to source, income-generating covered call ETFs have blossomed in the US this year, Crigger told Blockworks.

The Nationwide Risk-Managed ETF (NUSI) has brought in $666 million in assets year-to-date, she noted, while Global X’s NASDAQ 100 Covered Call ETF (QYLD) has seen inflows of $3.8 billion so far in 2021.

“Purpose’s covered call ETFs could serve the same yield-hungry investor, while also serving investors who want a chance to participate in crypto’s price action,” Crigger explained. “Now, is there much overlap in the Venn Diagram of those two investors? I’m not sure there is.”

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