A bitcoin ATM inside the Big Apple Tobacco Shop in New York City. On Thursday, Purpose became the first official exchange-traded fund anywhere in the world designed to track the price of Bitcoin, the most well-known digital currency.

Tracking the price of Bitcoin with Purpose

Purpose made history Thursday, becoming the first official exchange-traded fund anywhere in the world designed to track the price of Bitcoin, the most well-known digital currency. While there are already a handful of closed-end funds in the North American market, the ETF approach is expected to move in virtual lockstep with Bitcoin’s price, because the funds have no cap on the number of units.

While Purpose Investments might not be a household name, its top executives are Bay Street veterans, including CEO Som Seif, who started Purpose after selling his old company Claymore Investments to BlackRock. (Before that, Seif was in investment banking at RBC Capital Markets). Also on Seif’s team is chief investment officer Greg Taylor, a longtime portfolio manager at Aurion Capital Management.

Purpose will value its fund’s holdings of bitcoin using the TradeBlock XBX Index. TradeBlock describes itself as “the world’s leading provider of institutional trading tools for digital currencies.” It’s backed by a number of Silicon Valley heavyweights including Marc Andreessen, through Andreessen Horwitz, the private equity firm he co-founded.

While giving retail investors an easy, affordable way to buy into the crypto craze (at roughly $10 per unit, it’s a lot cheaper than buying a single bitcoin for $52,000 U.S.), the prospectus of Purpose’s ETF acknowledges that it’s not exactly the world’s most secure investment. “The loss or destruction of certain ‘private keys’ … could prevent the Fund from accessing its bitcoin. Loss of these private keys may be irreversible and could result in the loss of all or substantially all of the Fund’s assets.” Perhaps not something you’d want to plow your entire RRSP into.

An ETF for investors planning to Evolve into cryptocurrency

Despite getting beaten to the market by Purpose, executives at Evolve are confident their own bitcoin ETF — which began trading Friday — will do just fine in the long run, thanks.

“It’s a competitive industry. I’d be lying if I said we didn’t care. But I think in the fullness of time, it won’t ultimately matter that we launched a day apart,” said Evolve’s Chief Investment Officer Elliot Johnson, another Bay Street veteran who previously worked at Fiera Capital, National Bank, and GMP Capital Markets. At Fiera, he worked with Evolve CEO Raj Lala. Before founding Evolve, Lala ran the Canadian arm of Wisdom Tree, one of the world’s biggest ETF providers.

Johnson said Evolve’s ETF will be targeting three groups of investors: people who already invest in bitcoin directly; people who invest in closed-end bitcoin funds, and people who haven’t invested in either but are interested in catching some crypto lightning.

“We believe the third group will be bigger than the other two combined,” said Johnson.

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Evolve will value its bitcoin holdings using the Chicago Mercantile Exchange’s bitcoin Reference Rate, an amalgam of market rates on several major bitcoin exchanges. Johnson points out that the CME BRR is a well-known benchmark, having been used to value roughly $300 billion in Bitcoin-related trades (mainly futures contracts).

Also like its competitor, the prospectus for Evolve’s bitcoin ETF features some disclaimers that sound a little bit like the direst of warnings about side effects from experimental medications.

“You should not invest unless you understand the risk that the Evolve Fund may lose possession or control of its assets.” (Rough layman’s translation: Don’t buy unless you’ve got plenty of Zantac).

Bottom line

We’re not saying they’re identical, but they’ve both got Bay Street veterans at the helm, they both value their holdings using a broadly-used rate, and they both charge a relatively small one per cent management fee. But as first to trade on the TSX, Purpose wins the tiebreaker, and a wave of first-mover publicity. Let’s be honest — has anyone ever written a story about the SECOND baby born New Year’s Day?

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