This week, I got a chance to hear from Elliot Johnson, chief investment officer and chief operating officer with Evolve ETFs.
As many investors know, Evolve just launched a new ETF. And it’s taking the market by storm.
The ETF everyone is talking about right now is Evolve Ether ETF (TSX:ETHR). This ETF has soared more than 15% over the past two days, as investors look for ways to invest in Ethereum and Ether.
Here’s what Mr. Johnson had to say about this offering and why investors should get excited about this ETF.
Fool: Could you walk us through the development process of the ETHR ETF? How has your experience been in getting these innovative ETFs approved?
Evolve: We’ve been working on cryptocurrency ETFs for almost four years. It’s incredibly satisfying to see them finally come to market. Evolve filed for Canada’s first Bitcoin ETF in 2017, but the regulators weren’t ready at that time.
Our two recent launches, the Bitcoin ETF (EBIT) and the Ether ETF (ETHR), were the result of working closely with the Ontario Securities Commission (OSC) to satisfy their concerns relating to the design of these types of products. Specifically, they wanted to ensure we were using a valuation price that couldn’t be manipulated and that we would never buy Bitcoin or Ether from an illegitimate counterparty.
We satisfied these concerns by partnering with CF Benchmarks to use the same reference rate that is used in the CME futures market for Bitcoin and Ether futures. This rate is regulated in the U.K. and Europe, and the CME futures are regulated in the U.S., so they have developed the most robust, manipulation-resistant methodology in the industry.
Add to that the fact that the futures markets settle against these rates, and we are able to transact spot Bitcoin or Ether at that price without ever trading these assets. Market makers are able to deliver as much Bitcoin or Ether as required to our custodian Gemini at a fixed rate each day. This innovation allowed us to build an ETF structure that can grow and shrink based on supply and demand without any internal portfolio slippage. We feel it’s a significant competitive advantage that our funds have over others in the marketplace.
Fool: On this note, are there plans to launch a similar Bitcoin/Ether ETF in the U.S.?
Evolve: We’ve explored this opportunity, but all roads in the U.S. lead back to the SEC. Unfortunately, we can’t get a cross listing or depository receipt into the U.S. market without going through the same review as the Bitcoin and Ether ETFs that are currently waiting for approval.
Until the SEC changes their stance, Canadian Bitcoin and Ether ETFs offer the best exposure to these assets anywhere in the world. The good news for U.S. investors is that most of them can trade listings on the Toronto Stock Exchange within their brokerage accounts. Investors just need to contact their brokerage firm to request access.
Fool: Please provide some insight into what differentiates Evolve ETF from the other two ETFs recently launched.
Evolve: As previously mentioned, our partnership with CF Benchmarks gives us a pricing rate that we can also trade at, so internal slippage won’t be an issue in our ETF. This improves tracking and gives investors peace of mind knowing that a dollar in our ETF is the same as a dollar in Ether.
The other advantage of using this rate is that dealers can quote tight spreads on our ETF, because they hedge themselves using the futures market, which relies on the same price. Our ETFs will consistently trade in line with the price of Ether.
Finally, to celebrate the launch, we have waived our management fee until May 31st, giving investors a great opportunity to get started adding Ether to their portfolios.