Canada returned to innovating with the launch of two more cryptocurrency ETFs this Tuesday. The new BTC and ETH (funds will have a novelty: monthly interest payments.
These products will be launched by Purpose Investments, the same manager that launched the first ETFs in the Americas. The two funds are called Purpose BTC Yield ETF (BTCY.B) and Purpose Ether Yield ETF (ETHY.B).
According to Vlad Tasevski, Purpose’s chief operating officer and head of product, ETFs will have lower capital losses and less volatility. The executive points out that these ETFs are indicated for clients who want less risk when exposing themselves to cryptocurrencies.
Understand the proposal
Similar to a traditional ETF, these funds offer exposure to the price of the underlying asset. In this case, BTC and ETH. The only difference is the payment of this monthly income, which will act as a kind of dividend.
This is done through a strategy called covered call option. The strategy is based on derivatives, but Purpose did not elaborate on how it will work. The manager claims that ETFs are pioneers in bringing this strategy to cryptocurrencies.
As the manager pointed out, market volatility means that the yield does not have a fixed rate. Annual returns are expected to be between 8% and 10%, while Canada’s benchmark interest rate is at 0.25%. The two funds will have an administration fee of 1.10% per year.
“They should also consider whether they want to earn income while holding (quotes). Covered call options allow investors to generate additional short-term income on an asset they believe has long-term potential,” said Tasevski.
Less risk, less potential
In this way, the investor will receive passive income, something that does not occur when investing directly in cryptocurrencies. But monthly payments will impact capital gains, which will be more limited.
That is, the ETF will make frequent payments and will have less risk to the investor’s capital. However, it should underperform the price of BTC and ETH, especially when the market is up.
With the new ETFs, Canada has four exchange-listed cryptocurrency funds. The country also created two other BTC and ETH funds in early 2021, which were enormously successful.