Two Canadian bitcoin ETFs issued
“market disruption” warnings during
this week’s cryptocurrency turmoil,
highlighting the risks faced by the vehicles
that are increasingly popular with
retail traders.
Bitcoin tumbled by almost a third at one point on Wednesday, a lurch lower that triggered curbs that are meant to ease panicky trading in the market for futures tracking the cryptocurrency. The brief trading halt on the Chicago Mercantile Exchange posed a potential problem for two funds run by Horizons ETFs Canada that track bitcoin futures. The Horizon funds sent an alert in the Toronto morning to their market makers, which facilitate trading in ETFs, that they would not be able to honour the day’s buy and sell orders if the futures price remained at its lower limit at the close of trading.
“We were on high alert at 9am,” said Steve Hawkins, chief executive of Horizons ETFs Canada. “We had to put in place all the business continuity plans for these ETFs.” The futures price eventually began moving again as bitcoin recovered, but the incident illustrates that even cryptolinked products that trade on regulated exchanges face risks from the large swings in the market. “I’m hoping this has opened the eyes of the retail investing public to understanding how volatile this asset class is,” said Hawkins. The situation comes as US regulators are considering at least 11 applications to launch crypto ETFs, vehicles that would be easily accessible to regular retail investors. In a state ment last week, the Securities and Exchange Commission said that its staff would consider whether “the bitcoin futures market could accommodate ETFs” and cautioned on the risks of “highly speculative investment”. Horizon launched the pair of ETFs in April based on bitcoin futures traded on the CME, after winning approval from Canadian securities regulators. The two funds, which are priced in Canadian dollars, allow traders to take bets on whether bitcoin’s price will rise or fall through regular investment accounts. Horizons’ funds are part of a handful of bitcoin and ethereum-based ETFs launched on the Toronto Stock Exchange this year that were hailed as a milestone for exchange traded crypto products. Some of these funds and their proposed US counterparts are backed by direct holdings of crypto assets, while the Horizons funds are based on futures. Despite the volatility on Wednesday, Hawkins said that many retail traders remained interested in trading these kinds of ETFs. “This is something that people want to trade and own,” he said