Cryptocurrency ETFs have gained traction in Canada as a convenient way to gain exposure to the digital asset space without the need to buy or store crypto directly. Broadly speaking, two main categories have emerged: blockchain ETFs and crypto ETFs. While they’re often grouped together, these ETFs serve very different purposes and understanding the difference is key to choosing the right one for your investment strategy.
What Are Blockchain ETFs?
Blockchain ETFs focus on companies that are involved in the development and implementation of blockchain technology, the underlying infrastructure behind cryptocurrencies. These ETFs typically invest in stocks of firms that build blockchain platforms, provide blockchain-based services, or leverage blockchain in innovative ways.
This might include companies in sectors such as technology, financial services, and even supply chain management that are actively utilizing blockchain to enhance transparency, efficiency, and security. Investors who choose blockchain ETFs are effectively gaining exposure to the broader blockchain ecosystem without directly holding any cryptocurrencies.
What Are Crypto ETFs?
Crypto ETFs, in contrast, provide direct exposure to the price movements of cryptocurrencies, like Bitcoin or Ethereum, without having to own the cryptocurrency itself. These ETFs typically fall into two types: spot-based and futures-based, both of which aim to track the price of the underlying digital assets, but through different mechanisms. Spot ETFs provide direct exposure to the current market price of the cryptocurrency, while futures ETFs offer indirect exposure through regulated futures contracts. The difference in structure affects key factors such as risk, performance, costs, and regulatory considerations.
Crypto ETFs tend to be more volatile due to the inherent price swings of cryptocurrencies. Their value can rapidly change in response to market trends, regulatory news, and broader economic factors affecting the crypto industry.
Considerations Before Investing
One of the potential benefits of investing in blockchain ETFs is their tendency to experience lower volatility compared to crypto ETFs. Since these funds invest in publicly traded companies rather than the digital asset ETFs, their performance tends to be influenced by business fundamentals, earnings reports, and market sentiment around tech innovation.
Investors interested in blockchain ETFs may appreciate a more traditional investment approach with potential growth from technological adoption and corporate innovation. These ETFs may appeal to those who want to benefit from blockchain’s transformative potential while avoiding direct crypto market volatility.
Conversely, crypto ETFs may be more suited for those seeking more direct price exposure to cryptocurrencies but who prefer to avoid the challenges of owning and securing digital coins themselves. However, in considering this option, investors should be aware of factors such as market volatility, custodial risks, futures mechanics and liquidity.
Tax Treatment and Registered Accounts
For Canadian investors, gains realized from both blockchain and crypto ETFs are generally treated as capital gains. Distributions may be taxed as income. It’s important to consult a tax professional to understand how these investments fit within your broader financial plan.
Some crypto and blockchain ETFs may be eligible for inclusion in registered accounts like RRSPs or TFSAs, but eligibility depends on whether the ETF qualifies as a “qualified investment” under the Income Tax Act. Investors are encouraged to review the fund’s prospectus or seek advice from a financial advisor to confirm.
Choosing What’s Right for You
Both blockchain and crypto ETFs offer unique pathways to participate in the evolving digital economy. Your choice will depend on your risk tolerance, investment horizon, and how comfortable you are with the nuances of the crypto ecosystem.
Qtrade offers investors access to a wide range of crypto ETFs, empowering you to conduct your own research and build a diversified portfolio. As digital assets continue to mature, ETFs may offer a practical entry point for investors who want to explore the space without navigating the complexities of direct crypto ownership. Whether you’re seeking the innovation potential of blockchain or the price exposure of cryptocurrencies, understanding the differences — and the risks — is essential before adding these ETFs to your portfolio.