From claims of its potential to protect against inflation to ushering in a new era of decentralization, cryptocurrency has been hailed by enthusiasts from all walks of life as the future of investing.
Though the promise of these benefits may be enough for some experts to encourage the development of easier avenues for investing in the crypto market, such as exchange-traded funds, a myriad of other factors 鈥 including digital currency鈥檚 recent association with Ponzi schemes and speculative investing 鈥 has left others unconvinced.
One professional in the former category is Nawan Butt, head of capital markets and a portfolio manager at Purpose Investments. The Toronto-based investment firm boasts the industry鈥檚 first bitcoin-based ETF, which Butt said aims to 鈥渂ring the world of digital assets into a regulated space.鈥
鈥淭he biggest challenges within the world of digital assets are the complexity that comes with setting them up, and ensuring the security investors need (in order to) feel confident that those assets are safe at all times,鈥 he said.
鈥淨uestions related to setting up a secure (cryptocurrency) wallet involve a very high learning curve, which deters investors from easily gaining access to this space,鈥 Butt continued, 鈥渂ut given how accessible ETFs are to the average investor, this makes it possible for people to even buy and sell bitcoin within their registered accounts,鈥 including RRSPs or tax-free savings accounts.
Exchange-traded funds or ETFs are traded like stocks, but instead of being individual companies, the fund is made up of a group of assets 鈥 stocks from a specific sector, companies meeting a certain emissions cap threshold, currencies, or even an entire index.
By allowing investors to enter the world of cryptocurrency through ETFs, investors may be exposed to less risk because of the better diversification and regulatory environment.
鈥淲hat this means is that first, these funds are based on a pool of different cryptocurrencies 鈥 so instead of buying one and relying on that one form of crypto to do well, you can buy an ETF, and if one cryptocurrency in that fund starts to go down, the others will help keep the fund as a whole afloat,鈥 he said.
Purpose鈥檚 main strategy to keep clients鈥 crypto investments safe is by regulating them through 鈥渃old wallets,鈥 meaning these assets are largely stored offline and cannot be accessed by anybody other than the individual in physical custody of the assets themselves 鈥 either through the form of a USB or other private keys that can鈥檛 be hacked over the internet.
鈥淥n top of that,鈥 added Butt, 鈥渢o bring them online, we have multiple layers of security that need to be cleared from multiple parties and multiple different institutions.鈥
However, some experts 鈥 including Colin White, president and chief executive officer of Verecan Capital Management 鈥 warn these steps may not be enough to protect investors from the inherent instability cryptocurrency investments are known for.
Cryptocurrency 鈥渋s not an asset class, and it鈥檚 not an investment. It鈥檚 pure speculation,鈥 said White.
鈥淚t has no intrinsic value. It is not profitable. ... The only value bitcoin has is that somebody else is willing to pay more for it.鈥
Although this form of purchasing and selling cryptocurrency may be subject to greater regulation than previous forms of crypto investments 鈥 including the Ontario Securities Commission鈥檚 decision to review and approve Purpose鈥檚 bitcoin ETF in 2021 鈥 in White鈥檚 opinion, this doesn鈥檛 resolve the myriad of other issues associated with digital currency.
For instance, though White noted the diversification inherent to an ETF might reduce the chance that one鈥檚 investment as a whole could fall victim to the numerous kinds of fraud-related scandals the cryptocurrency market has seen over the past few years, he argues the fact that the chance is still there 鈥 even if for just one form of digital currency in a given ETF鈥檚 basket 鈥 renders it a risky endeavour.
鈥淚n the end,鈥 White said, 鈥渁ll this does is make it easier to invest in bitcoin 鈥 not necessarily safer.鈥
Though Butt said he heeds the concerns of traditionalists who may not trust cryptocurrency as an investment option, he reiterated his faith in his company's approach to crypto transactions and storage 鈥 and that one鈥檚 decision to engage with digital currency ultimately comes down to one鈥檚 beliefs in the direction investing is heading.
鈥淭he core idea people should think about is whether the long-term aspect of cryptocurrency as a digital currency that is decentralized, borderless, deflationary, and operating on a highly-secure network make sense to you, and do you think it makes sense to others in an increasing manner?鈥 he said.
鈥淚f yes, then a bitcoin ETF may be a way to meet that need more easily,鈥 he said.
鈥淚f not, there are a number of other investment options out there for you to achieve your goals 鈥 so long as you鈥檙e keeping an eye to the future of how the financial market is changing, you should be in a good place with your portfolio.鈥
This report by 好色tvwas first published March 12, 2024.
