Posted on April 15, 2018
Would you dig through your attic for an old hard drive if it had bitcoin on it? In this episode, we explore why Bitcoin and other cryptocurrencies have become so valuable and why Canadian investors are watching the space with interest. We take a look at new financial products being built around these cryptocurrencies now arriving on the scene – ETFs, futures contracts, trust funds, and new vehicles for investing in blockchain technologies. Find out why Canada could beat the United States in bringing regulated bitcoin products to market.
Our guests for this episode:
- Karsten Arend, President, Just In-Genius Inc.
- Karl Cheong, Head of ETFs, Canada (exerpt below)
- Shidan Gouran, President, Global Blockchain Technologies
- Elliott Johnson, Chief Operating Officer, Evolve ETFs
Views expressed do not necessarily represent those of Navigator or its affiliates.
A portion of our discussion with Karl Cheong is transcribed below. Subscribe here to have the Navigator’s latest insights delivered right to your inbox.
Clare: You had mentioned earlier that there are some challenges both here in Canada with the OSC and with the U.S. Securities and Exchange Commission looking at these Bitcoin ETFs and not sure what to do with them. Will we ever get to a point where there’s a real chance these products come to market and if they do what does that mean?
Karl: Yeah. So I do believe in every asset class I have ever seen whether it be gold or equities and real estate, if there is enough demand by the public it will be made available in some form. We’re already seeing some form of access to Bitcoin via over-the-counter trusts. Just because there is no Bitcoin available right now, there’s one in the U.S. I’m thinking of in particular G BTC that trades in the over the counter market. So it’s an exchange traded fund but it’s not exactly like an ETF in a sense that it trades at a 55 percent premium to the net asset value of the product because you cannot create in redeem shares. But if an investor wanted to go on an online account they can get access to the Bitcoin price by paying a huge premium to do so. And so that’s why I feel the ETF will make it far more efficient for the everyday investor to get access to a burgeoning asset class.
Now I would say though you know the timing is going to be a bit tricky. When I first started talking about this I thought it was going to be by summertime, given the demand and what we saw. And and we have filings that have been in the market place for over three years four years with the Winklevoss twins being the first to file. So I feel they’ve been working with regulators and they’re going to need to continue and educate and address these concerns. I would say it’s probably going to happen in the next three years. But that’s kind of … I don’t have the crystal ball. And obviously regulators will do the necessary homework they need to on this product. But as it becomes more of a utility in society and you see more companies accepting crypto currencies, you’ll see others like you know Kodak, for example, they’re creating their coin that they can pay others and remittances in other areas. I feel this this whole blockchain and Bitcoin concept can really disrupt many and it becomes more everyday usage. You’ll see a product eventually.
Clare: Yes exactly. And you know what the regulators have been okay with, we saw back in February the OSC approved Canada’s first blockchain ETF. Is that a different way to go, is that is that a better way to go right now. And why do they think that’s a that’s a better product or a product that has less uncertainty than say a Bitcoin ETF.
Karl: So we also launched a Bitcoin ETF last Friday and so I expected less red tape with blockchain ETFs. There are several in the U.S., there’s a few here in Canada now because it’s investing in the underlying securities. And so I’ll give you a few examples of companies that we hold in our blockchain ETF that you wouldn’t necessarily affiliate blockchain with the name. We hold companies like IBM. IBM, if you go onto their website I’m sure you’ve heard of software as a service, you would see something on the website called blockchain as a service. So they’re enabling other companies to use the blockchain technology in the one example I’ll give you as they’re partnered up with Wal-Mart for a pilot case study on how to track food and produce. They have this one example regarding a bad crop of mangoes. Wal-Mart went through their normal processes to try to identify the farm it came from to avoid you know food recalls and borne illnesses for example. And it took them about six and a half days to actually track that down via phone calls and other methods that they traditionally have. Wal-Mart partnered up with blockchain and within a consortium and it’s really important to distinguish blockchain could either be public which is the crypto currencies or private and in this case it was a private blockchain, Wal-Mart had all its suppliers on this blockchain. There’s no mining or what not. Everyone knows who everyone is on this blockchain it’s just an open ledger that’s verified by one or two people. So in this case Wal-Mart entered into a bar called of the mangos and identified where that farm was within 30 seconds. Right. And so you can see the time in efficiency and cost that this technology can produce.
Over time it will be something like, I think like what we saw with cloud computing and Amazon. So very early on Amazon in 2011 started investing in the cloud. We all had high hopes that it would be a great business line for them. Today, fast forward web services is a significant part of their overall revenue and contributor to growth. So the way we have seen the blockchain ETF come to market because they’re playing it more pick and axe, you know think about like way back when in the 90s many people wanted access to the internet and the only company available for purchase was AOL right. And so you know I liken it to that period because right now you have certain blockchain companies that haven’t been a blockchain company for very long. They’ve changed their name in some cases to avoid getting delisted and some of them kind of very eerily reminiscent to the dot com era. And so with these products that are coming to market including ours of course, we are screening through and ensuring that you’re getting leverage to the blockchain exposure but we’re investing in infrastructure, in companies that have the resources to to build in this technology. RBC for example and Goldman Sachs that use this technology but you know it’s too early stages right now because there’s no one line item that shows blockchain revenue and that’s the challenge of creating portfolios so most of us are creating it via indirect exposure.