What is the Bitcoin ETF?

An Exchange Traded Fund (ETF) is a popular investment vehicle because it allows investors to readily and easily invest in securities that would otherwise be expensive or cumbersome to acquire individually. Shares of an ETF trade on the exchange like a single stock, which makes them easy to buy and sell.

Usually, ETFs diversify your money across multiple different investments that are related by industry or geography. However, Bitcoin ETF will only be investing your cash in Bitcoin. Cryptocurrency is not yet available as a recognized currency by traditional banks and brokerages, so this is the only way a retail investor can purchase Bitcoin on the fiat stock market.

The Purpose Investments Bitcoin ETF is the first ETF in the world to be physically backed by Bitcoin, not derivatives. This makes it similar to gold and silver ETFs already trading on the stock exchange. BTCC will allow retail investors to invest in Bitcoin without having to purchase and store the digital currency themselves. Given the recent surge in the value of Bitcoin, many Canadians are freshly interested in trading in cryptocurrency, and this new Bitcoin ETF presents a unique opportunity.

Even though Canada is the first country to approve a Bitcoin ETF in North America, the Toronto Stock Exchange is a public stock market which means investors from anywhere in the world will be able to purchase shares of BTCC.

Why a Bitcoin ETF is a better way to invest in Bitcoin

The Purpose Bitcoin ETF will solve most of the pains and headaches of investing in Bitcoin by making it available on the traditional stock exchange. This will allow users to access it through their regular brokerage account, which means they’ll be able to trade Bitcoin just as they would any other stock. You’ll even be able to hold Bitcoin in your TFSA and RRSP!

Safer and more reliable bitcoin trading

Up until this point, those investing in Bitcoin had to purchase it on cryptocurrency trading platforms, separate from their regular brokerage. These platforms have a reputation for being slow, buggy, and vulnerable to hackers. Users regularly find themselves waiting days for an eTransfer to be accepted to deposit money in their account for trading, or unable to sell and withdraw crypto when they want to capture profits.

Now you’ll be able to buy and sell shares of the BTCC ETF without experiencing the lags and delays cryptocurrency trading platforms are notorious for. An ETF will also make your Bitcoin more liquid, as you’ll be able to withdraw any amount by simply selling your BTCC shares on the market.

An easier and more secure way to store your Bitcoin

Keeping your Bitcoin position in an ETF inside your brokerage account confers a lot of benefits in terms of security and having all your investments in one place.

Cryptocurrency investors are solely responsible for protecting and storing their cryptocurrency in digital wallets. Up to 20% of all Bitcoin has been lost forever from things as simple users forgetting their passwords or accidentally deleting their wallets from their computers.

Because the blockchain technology Bitcoin uses is so secure, locking yourself out of your crypto wallet pretty much means your cryptocurrency is gone for good. Thankfully, recovering a lost password to your brokerage account is much easier! And because the securities you buy with your brokerage account aren’t actually stored on your computer, you’ll never accidentally delete your stocks and ETFs.

Should you buy the Bitcoin ETF?

Cryptocurrency is no longer an investment that can be ignored. While the bulk of your investing should be in the traditional stock market, you should aim to keep 1% to 5% of your total investment portfolio in cryptocurrency. You invest even more if you really feel bullish about it as an asset class!

The Bitcoin ETF is a great way to get started investing in Bitcoin without the hassle of going through a cryptocurrency exchange platform. It also confers additional benefits in the opportunity to buy Bitcoin in registered accounts. If you’re worried about getting started with Bitcoin or other cryptocurrencies, it’s worth noting that you can actually invest with relatively little money.

Because shares of BTCC will be trading on the Toronto Stock Exchange, you’ll also have the opportunity to purchase them inside your Tax-Free Savings Account (TFSA) or Registered Retirement Savings Plan (RRSP). This provides a unique opportunity to tax-shelter your cryptocurrency investments that was not previously available to investors.

Risks vs rewards of investing in Bitcoin

While you might be excited at the prospect of dipping your toes into cryptocurrency, it’s worth noting that it still has risks. Bitcoin in particular is exceptionally volatile, which means the price of the Prosper Bitcoin ETF BTCC is likely to be volatile as well.

Just like with any other investment, you should do your research to learn the basics of investing in cryptocurrency before you begin and proceed with caution before putting your money in. Even though the availability of a Bitcoin ETF in North America signals more mainstream acceptance for cryptocurrency, it doesn’t mean the crypto market is immune to crashes. You can still lose your money, so make sure to diversify across other assets in the stock market to reduce your risk.

Neglecting other cryptocurrencies

One of the main downsides of BTCC is it only gives you exposure to one investment: Bitcoin. In fact, there are many other cryptocurrencies worth knowing about besides Bitcoin. The cryptocurrency market contains many more leading and altcoins like Ethereum, Dash, Litecoin, and Dogecoin. However, it seems as if other cryptocurrencies are catching up given the addition of new Ethereum ETFs to the TSX in April 2021. But, for the most part, if you’re interested in diversifying your investment across multiple cryptocurrencies, then you’ll have to stick with a crypto exchange platform.

How do I buy the Bitcoin ETF?

You should be able to purchase shares in BTCC wherever you access the stock market. There are a few online brokerages available to Canadians who want to invest in the financial markets. The advantage of using an online brokerage is that you can access the stock market without going through a middle man, which also makes investing this way more affordable. When the BTCC shares go live on the Toronto Stock Exchange, you should be able to buy them directly in your brokerage account during market hours.

Both Wealthsimple Trade and Questrade are online brokerages that make it free to buy ETFs, so you’ll pay no trading commissions to get started. If you want to forego investing in the Bitcoin ETF to avoid paying the fund fees, you can also use Wealthsimple Trade to invest in Bitcoin directly.

Final thoughts

The Prosper Bitcoin ETF is an exciting and historical development in cryptocurrency and the financial markets, as well as provides a smoother trading experience for new investors entering the crypto market. However, cryptocurrency is still a high-risk investment and remains considerably more volatile than other securities. You absolutely should consider adding cryptocurrency to your portfolio by buying coins directly or by investing in the Prosper Investments BTCC ETF. However, as with any investment, make sure to do your research and never invest more than you’d be willing to lose!

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Bridget Casey is the award-winning entrepreneur behind Money After Graduation, a Canadian financial literacy website aimed at 20 and 30-somethings. She holds a BSc. from the University of Alberta, and an MBA in Finance from the University of Calgary. She has been featured as a millennial financial expert by Yahoo! Finance, TIME Magazine, Business Insider, CBC and BNN. Bridget was recognized as one of Alberta's Top Young Innovators in 2016.


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