(Bloomberg) — Retail investors in Canada have rushed to invest in cryptocurrency exchange-traded funds after regulators allowed the proliferation of products that track bitcoin, ether and other digital assets. They lost most of that in a year.
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According to calculations by National Bank of Canada analyst Daniel Strauss, as of Nov. 18, Canadian crypto ETF assets totaled just C$1.64 billion ($1.22 billion). This is more than three-quarters below the value of these funds of 7.3 billion Canadian dollars as of November 30 last year.
The collapse of Sam Bankman-Freed’s FTX, following other bankruptcies in the sector, dealt a devastating blow to confidence in digital assets. Other major crypto firms have been shaken by the spread of the contagion: U.S.-based cryptocurrency broker Genesis Global is seeking emergency funding to stay afloat, while BlockFi Inc. is also reportedly in dire financial straits.
Wall Street hit: why Genesis infection matters after FTX
“The FTX effect has likely led to a lengthening of what could be called a crypto winter, a period of people not paying attention to or distrusting the space,” said Som Seif, CEO of Purpose Investments Inc. , – said in an interview.
As quickly as the market for risky assets has changed, the only money market ETF managed by CI Financial Corp. now has more assets than all Canadian-listed cryptocurrency ETFs combined. The CI Fund uses the simplest investment strategy imaginable: it deposits cash in interest-bearing savings accounts at commercial banks.
The vast majority of the decline in ETF assets was due to the fall in the price of bitcoin and other assets, not because of the outflow, which was small. Since the beginning of the year, crypto ETFs have seen C$51M outflows since the beginning of the year as of Nov. 18, although C$20M of that was in the first 18 days of this month.
Canada has gone further than the US in allowing regulated crypto-related products. Cryptocurrencies are classified as commodities for tax purposes, and many coins and tokens are classified as securities. The regulator stepped up its efforts after QuadrigaCX, the country’s largest cryptocurrency exchange at the time, collapsed in 2019 and was later found to be a scam and a Ponzi scheme perpetrated by its founder.
“Firms like FTX are one of the reasons regulators in Canada have adopted our publicly traded products,” 3iQ Corp. CEO said in an interview. Fred Pye.
However, Canadian crypto trading platforms and exchange-traded funds typically hold their assets with US custodians such as Gemini and Coinbase. “Hopefully this encourages Canada to look at situations like this and think, ‘Hey, maybe we should put these assets onshore now,’ said Dustin Plett, chief executive of Paradiso Ventures Inc., a Canadian digital asset custodian. who runs a business called Balance.
Seif’s Purpose Investments, which last year launched North America’s first directly backed bitcoin exchange-traded fund, expects demand to recover over the next few months. “Long term, I continue to believe that more and more people and organizations will want access to cryptocurrencies and their reverse flows,” he said.
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