Fidelity to launch physical spot bitcoin ETF

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Fidelity Investments will this week become the largest asset manager to launch a cryptocurrency exchange-traded fund.

The Fidelity Advantage Bitcoin ETF (FBTC) is designed to invest in “physical” spot bitcoins, a model that the United States Securities and Exchange Commission has so far rejected, rather than in bitcoin futures contracts, what the US financial regulator has authorized.

The entry of the world’s fourth largest fund manager, with $ 4.2 billion in assets, into the crypto market, however, will be seen as yet another sign of the growing acceptance of digital currencies in the global marketplace. traditional investment.

“This is important because top asset managers tend to be quick followers,” said Todd Rosenbluth, head of ETF and mutual fund research at CFRA Research. “They tend to take a more wait-and-see approach to investment trends, building on developments that have often been created by smaller, more nimble asset managers.”

The ETF, however, will not be available to most of the US fund group’s existing clients due to its listing in Canada, meaning it will be closed to US retail investors.

FBTC’s planned launch on the Toronto Stock Exchange ‘around or around’ Thursday, according to Fidelity, alongside sister mutual fund, comes more than eight months after filing ETF launch with SEC cash bitcoin similar in its home market. .

This request is among a dozen or more that have been indefinitely suspended due to SEC concerns about “fraudulent and manipulative acts and practices” in the markets where bitcoin is traded and the need to “protect them. investors and the public interest “.

The SEC’s position was challenged in late November in a letter from attorneys representing the $ 32 billion Grayscale Bitcoin Trust (BTC) which argued that the regulator had “no basis to claim that investing in the market derivatives for an asset is acceptable to investors. whereas investing in the asset itself is not ”.

In contrast, the Canadian crypto ETF market is increasingly crowded, with seven managers – Accelerate Financial Technologies, 3iQ, CI First Asset, Evolve ETF, Horizon ETF, Ninepoint Partners and Purpose Investments – already offering 23 funds, according to the data. from TrackInsight.

In total, ETFs, which invest in ether as well as bitcoin, have combined assets of $ 5.6 billion. According to TrackInsight, the European jurisdictions of Sweden, Germany, Switzerland, Jersey and Liechtenstein have 37 other exchange-traded products with $ 11.4 billion in additional assets.

The first launch in Australia is expected soon, but while the US has so far only allowed ETPs based on futures contracts, some jurisdictions like the UK have not even allowed them, the Financial Conduct Authority, the UK regulator, warning that anyone who invests in crypto assets “should be prepared to lose all of their money”.

WisdomTree and VanEck, which each manage around $ 75 billion in ETFs globally, are the biggest names to enter the European market, but are eclipsed by Fidelity.

However, other big names are expected to follow suit. Ignites Europe, an independent news service owned by the Financial Times, recently reported that UBS and State Street Global Advisors, as well as Fidelity, are exploring the possibility of developing cryptocurrency products.

Invesco last week launched a spot bitcoin ETF on Deutsche Börse, Invesco’s physical Bitcoin ETP (BTIC), despite recently withdrawing its application for a US-listed bitcoin futures ETF.

“Fidelity is the latest in a growing list of industry heavyweights looking to join the fray, with Invesco’s launch in Europe last week being the other notable example. Others may follow suit, especially as interest in retail continues to grow, ”said an industry figure.

FBTC will charge an annual management fee of 40 basis points, lower than most of its competitors, with a management expense ratio “estimated not to exceed 95 bps”.

Cryptocurrencies are increasingly viewed by major players in the investment industry as assets that, in moderation, can potentially improve the risk-return characteristics of large-scale portfolios.

Toby Sims of Fidelity International, the overseas subsidiary of the Boston-based group, recently wrote that “an alternative asset whose performance is unlikely to mirror that of traditional markets is attractive.

“Bitcoin is now taking on a role previously reserved for alternative assets, particularly gold. Bitcoin’s supply is limited, which means it can hold its value even as central banks print infinitely more money. It’s also easy to trade – not as easy as established currencies, but easier than gold. In times of uncertainty, that’s a plus.

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Sims added, “This is where a bitcoin ETF starts to make sense. There is a market that can see the allure of bitcoin but is fundamentally afraid of it. Some investors don’t want to get into a loosely regulated online exchange – they want a nice, easy ETF that will do the hard work for them.

Kelly Creelman, Senior Vice President, Products and Marketing at Fidelity Investment Canada, said, “We believe cryptocurrency is a valid asset class that we would like to offer as an investment option to retail investors in Canada.

“This product will provide investors with exposure to an emerging technology, and including it in a traditional retail and institutional portfolio of stocks and bonds can be beneficial from a portfolio diversification perspective.”

Rosenbluth felt that Fidelity was “likely to be successful because they can use it in their different portfolios.” Fidelity does a good job of making its own products accessible and easy to understand for its brokerage clients.

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