- Canada dominates the global spot Bitcoin ETF market and might hint at how big US products will be.
- JPMorgan analysts said slow growth of Canadian ETFs shows how overblown the US hype is.
- Analyst Eric Balchunas disagrees, and explains why "it looks pretty good" for the US.
Canada stamped itself as a pioneer when it approved the world’s first spot Bitcoin exchange traded fund — the Purpose Bitcoin ETF — back in February 2021.
There have been hiccups since, but the funds have seen a resurgence in 2023.
The Canadian ETF explosion can be used as a proxy for what will follow in the “massive” US market, Eric Balchunas, an ETF analyst at Bloomberg Intelligence, told DL News.
Assets under management at the Purpose Bitcoin ETF, the world’s largest spot Bitcoin exchange traded fund, soared 60% to over 947 million Canadian dollars this year, according to Cboe Global Markets’ Canadian arm. In US dollars, that’s almost $700 million.
Balchunas noted that the US ETF market is 32 times that of Canada’s.
“Based on Canada, if you extrapolate, it looks pretty good,” he said.
Canada’s spot Bitcoin ETF market share sits at 48% of all global spot crypto ETFs, at around $2 billion in assets, according to CoinGecko.
The global market is worth about $4.2 billion. South of the border, Balchunas has been tracking fund giants BlackRock, Fidelity, Ark Invest and the handful of other firms awaiting spot Bitcoin ETF approval — expected in January.
Optimism surrounding a Securities and Exchange Commission nod has helped drive Bitcoin 126% higher this year.
Canadian spot ETFs were initially predicted to be a game-changer, but when the Purpose Bitcoin ETF launched in 2021, its performance was underwhelming.
Expected to rise to over $1 billion in assets under management within a week, inflows to Purpose in early weeks went slower than anticipated.
By April 2022, the ETF had amassed a record $1.7 billion in assets, but that figure was quickly washed away by the Terra collapse in May.
Like many crypto markets, ETFs wallowed through 2022 and only started to recover this January.
In June, JPMorgan said there was “little interest” in Canadian ETFs, using it as an example to why the US ETF hype might be overblown.
Others reject that analysis — including Balchunas and Canadian regulators.
The Ontario Securities Commission wrote in a 2023 report that “much of the decline in AUM is due to the declining value of cryptocurrencies, rather than significant fund outflows.”
Balchunas noted that crypto ETF flows accounted for 5% of all flows in Canada this year. The increase in assets under management in the market adds up to 23% organic growth, a number Balchunas said is undeniable.
“The JPMorgan thing baffled me,” Balchunas said.
Canada’s ETF-friendly past
Canada has a history of pushing out ETFs well ahead of the US, as far back as the world’s first ETF, called the TIPs 35 Fund, which launched in 1990.
The US followed up with the SPY ETF in 1993. Balchunas cites Canada’s first cannabis ETF, launched in 2017, as another example where Canada beat the US to the ETF punch — it took the US nearly four years to approve a similar product.
Balchunas cites “conservative” regulators in the US, compared to Canada’s “more liberal” regime.
Still, Balchunas says, the tendency has been for US approval to follow.
“Once the first ETF in the asset class breaks through, the rest will be approved,” he said.
Road to SEC approval
Performance of Canada’s ETFs isn’t the whole story.
The road to spot ETF approval has not gone smoothly — the SEC has rejected every application to date, and on Tuesday delayed approval of Franklin Templeton’s proposed ETF.
The SEC has raised concerns that spot ETFs may be vulnerable to market manipulation and fraud. It has asked the public to express its concerns with such issues.
Canada, on the other hand, approved the crypto ETFs in short order, and has arguably stricter regulatory controls — the country rolled out a series of rules in 2022, which saw several major crypto firms exit the country, including leading global exchange Binance.
“The most important difference between Canada and the US right now is regulatory certainty in Canada,” Laure Fouin, partner at Canadian law firm Osler, Hoskin & Harcourt, wrote in an email to DL News.
Fouin pointed to explicit crypto-related guidance issued by the Canadian Securities Administrators, which included agency expectations for crypto asset funds.
Crypto firms in the US have long advocated for the SEC to produce explicit guidance for crypto assets.
SEC Chair Gary Gensler has insisted that existing securities regulations are sufficient.
The SEC has so far only approved Bitcoin-related funds tied to futures contracts.
Tyler Pearson is a Researcher at DL News. If you’ve got a tip on Binance or another story, please reach out at email@example.com.
A previous version of this article incorrectly stated that Osler, Hoskin & Harcourt is based in Calgary.