Best Bitcoin ETFs In Canada For January 2024 (2024)

Our current methodology for selecting the best Bitcoin ETFs in Canada includes the following:

• Fees: 40%
• Performance (one year): 30%
• Assets Under Management: 20%
• Investing Strategy: 10%

The highest rated Bitcoin ETFs on this list have some combination of a low management fee and management expense ratio, a large pool of assets under management of at least $10 million and above, and a high return percentage over the course of a year. Spot Bitcoin ETFs (those funds that purchase Bitcoin) were also rated higher than those that relied on futures (derivative contracts) for Bitcoin’s current price*.

*Information current as of January 12, 2024.

A Bitcoin ETF is exactly what it sounds like. It’s an exchange traded fund, but instead of tracking the performance of a basket of stocks, or being pegged to the performance of an index like the S&P 500, it is tied to the price of Bitcoin, affecting investors’ fortunes as the price of Bitcoin rises and falls.

A spot Bitcoin ETF invests directly in actual Bitcoin as the asset that powers its movement on the market. This is similar to a physically-backed gold ETF that holds gold bullion, bars and coins. In contrast, Bitcoin Futures ETFs follow the price of Bitcoin based on derivative contracts for the digital currency.

If you’re looking to invest in a spot Bitcoin ETF in Canada, you can do so through your financial advisor or an online self-directed investment brokerage. You can even buy them for your Registered Retirement Savings Plan (RRSP) or Tax-Free Savings Account (TFSA) like you can with regular ETFs, mutual funds, stocks and bonds.

For the investor, buying a spot bitcoin ETF is like buying other ETFs and securities. Market makers are constantly buying and selling Bitcoin ETFs for investors, which keeps the market liquid, meaning the price of Bitcoin ETFs changes throughout the day. ETFs and mutual funds are both pooled investments, but ETFs are traded in real-time like a stock, while mutual fund orders are based on daily market close prices.

Meanwhile, the Bitcoins underlying the Bitcoin ETF’s value are held in a secure digital vault. They are purchased by a fund custodian from other holders or an approved cryptocurrency exchange.

Cryptocurrency tokens are minted to represent Bitcoin’s value. The ETF will then issue shares that mirror the amount of Bitcoin it holds and these shares are traded on traditional stock exchanges, such as the Toronto Stock Exchange (TSE) in Canada.

The Bitcoin ETF is meant to reflect the current market price of the cryptocurrency, so it tracks the price of Bitcoin as closely as possible. Occasionally, tokens behind the Bitcoin ETF are bought or sold to rebalance the holdings. Financial institutions that offer spot Bitcoin ETFs create or redeem Bitcoin ETF shares based on market demand. They can also create or redeem shares in large blocks if the Bitcoin ETF is selling at a premium or a discount compared to Bitcoin itself. This allows the shares of the ETF to more closely align with the actual price of Bitcoin on the cryptocurrency market.

There are several reasons investors may choose to invest in Bitcoin ETFs over buying actual Bitcoin.

The Advantages of Bitcoin ETFs

• Acquire as a traditional investment. Bitcoin ETFs are available through a financial advisor along with traditional or online brokerages, so there’s no need for investors to have to learn how to purchase Bitcoin through a cryptocurrency exchange or how to use a crypto wallet. Instead, they can invest the same way they always have.
• Security and peace of mind. Traditional financial institutions provide some sense of security as they are governed by the Office of the Superintendent of Financial Institutions (OSFI), whereas if a cryptocurrency exchange is hacked, there’s no oversight whatsoever. What’s more, large financial institutions are still largely known and trusted in Canada on reputation alone, while cryptocurrency exchanges are still looked at with skepticism and suspicion by the mainstream.
• Diversification. ETFs can hold more than one investment, giving your portfolio diversity and mitigating your investment risk across many sectors.
• Tax-efficiency. You can invest Bitcoin ETFs into several registered accounts, like a TFSA or RRSP, either tax-free or tax-deferred, depending on the account. In contrast, profits from a Bitcoin trade may be taxed as capital gains, as it is treated as a commodity by the government and not legal tender. Therefore, you can’t fund your traditional investments, whether registered or unregistered, with Bitcoin in Canada.

However, Bitcoin ETFs are not without risks that you need to keep in mind before you click “Buy”:

The Disadvantages of Bitcoin ETFs

• Inaccuracy. The rise in Bitcoin’s price may not be accurately reflected in a spot Bitcoin ETF because an ETF can also hold other assets in a bid to diversify an investor’s portfolio.
• Management fees. For their convenience, Bitcoin ETFs charge management fees just like any other ETF. If you are invested in multiple Bitcoin ETFs or ETFs in general, these costs can add up.
• Can’t trade for other cryptocurrencies. Though there are Ethereum ETFs also available in Canada, that’s where the cryptocurrency ETF diversity ends. Conversely, actual Bitcoin can be traded for many other cryptocurrencies, giving you many alternatives to Bitcoin.
• No actual Bitcoin ownership. Some investors want Bitcoin as a hedge against the possibility that the traditional financial system will one day fail. And when you purchase Bitcoin, your transactions are anonymous and the exchange is decentralized. However, with a Bitcoin ETF, you don’t actually own Bitcoin, since the financial institution behind the investment controls the underlying asset.

The SEC’s approval of 11 U.S.-based spot Bitcoin ETFs means that many different kinds of investors will suddenly take interest in the asset class and start investing in Bitcoin through this new availability. Bringing more investors to the table when it comes to Bitcoin means increased legitimacy for Bitcoin and cryptocurrency in general, especially since there’s now an avenue to invest through which is regulated and trusted by the mainstream financial sector.

Some Bitcoin aficionados may not be fans of this development, since Bitcoin was initially created as a response to mistrust in the financial system. However, given the recent scandals plaguing the cryptocurrency sector—the bankruptcy of FTX and the arrest of its founder Sam Bankman-Fried, the hacking of several exchanges over the years and the use of Bitcoin by criminals for money-laundering—this announcement creates some stability that will likely reduce some of Bitcoins volatility in the market and take away some of the criminal element associated with crypto. However, it may still introduce more volatility than many typically-conservative Canadian investors can stomach, especially for their retirement accounts.

If you are an investor who already has their money in Canada’s Bitcoin ETFs, the resulting demand will likely raise prices on those Bitcoin ETFs. Since the price of Bitcoin will likely go up, this is good for Canadian investors looking to “sell high” on the Bitcoin ETFs already in their portfolio. At the same time, the price of admission for new investors may become more expensive than it once was with Bitcoin’s predicted rise in price. Of course, Canadian investors may have already seen deep drops in their Bitcoin ETFs thanks to earlier Bitcoin volatility, but if they were able to hold on, spikes in volatility usually have more upside than downside over the long-term.

Canadian Bitcoin ETFs will also be facing some price pressure, as they charge higher fees than the ETFs that have approval in the U.S. For example, Purpose Bitcoin ETF—the first Bitcoin ETF to be launched in the world in February 2021—has a Management Expense Ratio (MER) of 1.49%, while the U.S.-listed and SEC-approved Fidelity Wise Origin Bitcoin Fund has an MER of 0.25% that is being waived until August 1, 2024.

To their credit, Fidelity Investments Canada ULC has announced they will reduce the MER on their Fidelity Advantage Bitcoin ETF to 0.39% from 0.44%. Conversely, the Purpose Bitcoin ETF will not be waiving or reducing its MER.