Should Investors Follow Elon Musk Into Crypto, as Canada Approves its 1st Bitcoin ETF?

Canada is launching the world’s first Bitcoin ETF. Should investors buy now?

| More on:
exchange-traded funds

Image source: Getty Images

A week ago, the Ontario Securities Commission (OSC) gave the final approval for Canada’s first Bitcoin ETF. This will also be the first such ETF in the world.

Bitcoin mania has swept the investing community, and everyone seemingly wants in. Given the fact this ETF will be aimed at retail investors, we could see an influx of investment into this already crowded trade.

What is this fund, and what does it do?

The fund that has been approved is being launched by Purpose Investments. This fund allows investors to invest in Bitcoin without having to set up a digital wallet and store coins on their own. Essentially, this ETF will buy and hold Bitcoin in “cold storage” — that is, a custodian that is offline and cannot be hacked. Purpose has listed Gemini Trust Company LLC as the custodian.

This fund is expected to start trading on February 18, under the ticker BTCC. The ETF is expected to have a 1% fee, which is rather high in the ETF world. That said, demand for this ETF is not expected to be hurt by this fee.

I’ve talked about The Bitcoin Fund (TSX:QBTC.U) in the past, but these aren’t really two comparable funds. This is because up until now, only closed-ended Bitcoin funds were available to investors. These funds typically have large premiums and are structurally different from exchange-traded funds.

Where’s Bitcoin headed from here?

How high cryptocurrencies like Bitcoin can rise is anyone’s guess right now.

Tesla’s influential CEO Elon Musk recently flouted a US$1.5 billion investment in Bitcoin. This has continued to provide momentum for these digital currencies. In fact, the price of a single Bitcoin just surpassed the US$50,000 level.

With so much momentum behind Bitcoin, and no real way to value this asset class fundamentally, the sky really does appear to be the limit in this case. However, as with all speculative investments with questionable inherent value, risks tend to be material.

Risks are rampant, so be very, very careful

I’ve noted for a long time that cryptocurrencies like Bitcoin are impossible to value. Some analysts have tried to do so using the money supply and future potential of a Bitcoin-dominated world to do so. However, a microscopic percentage of transactions currently are handled with Bitcoin. Additionally, I’m wary of a future where it’s possible to be paid in a currency that has the potential to go up or down on a double-digit percentage basis on a daily basis.

The Bitcoin infrastructure requires a tremendous amount of energy. Thus, I was surprised to hear of Elon Musk’s recent Bitcoin investment. This is still a currency being used primarily for black market activities and transactions involving parties seeking anonymity.

I don’t see the investment value here and would caution investors looking for growth to do so in high-quality equities.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

Fool contributor Chris MacDonald has no position in any of the stocks mentioned. David Gardner owns shares of Tesla. Tom Gardner owns shares of Tesla. The Motley Fool owns shares of and recommends Tesla.

More on Tech Stocks

Business man on stock market financial trade indicator background.
Tech Stocks

1 Growth Stock Down 50 Percent to Buy Right Now

There are plenty of growth stocks in the market worth considering, but Shopify (TSX:SHOP) looks like one of the best…

Read more »

Woman has an idea
Tech Stocks

Prediction: 1 Stock That Could Trounce the Market 

The TSX has been favouring tech stocks, but not this one. However, it has the potential to trounce the market…

Read more »

clock time
Tech Stocks

Long-Term Investing: 3 Top Canadian Stocks You Can Buy for Under $20 a Share

These three under-$20 stocks offer excellent buying opportunities for long-term investors.

Read more »

Businessman holding AI cloud
Tech Stocks

AI Will Transform Everything: Investors, Be Early Adopters and Buy These 3 Stocks

Investors looking to invest in companies doing big things in AI should consider these three stocks for their portfolios.

Read more »

stock research, analyze data
Tech Stocks

Forget Shopify: These Unstoppable Stocks Are Better Buys Today 

Should you consider buying Shopify stock while rivals consider a buyout or should you go for stocks with a stronger…

Read more »

A colourful firework display
Tech Stocks

2 Potentially Explosive Stocks to Buy in March

These two growth stocks are destined for many more years of market-crushing returns.

Read more »

edit CRA taxes
Tech Stocks

TFSA Millionaires Are Learning They Can Still Be Taxed

If you day trade stocks like Shopify (TSX:SHOP) in a TFSA, you may be taxed.

Read more »

Shopping and e-commerce
Tech Stocks

Where Will Lightspeed Stock Be in 5 Years?

Lightspeed stock (TSX:LSPD) continues to be touch and go, so what might happen in the next five years?

Read more »