Although several Canadian fund managers are betting bitcoin will climb higher, they also warn the wild ride that has historically plagued this asset is not over.OZAN KOSE/AFP/Getty Images
Bitcoin’s price has surged since Donald Trump won a second term as U.S. president after pledging on the campaign trail he would make the country the “crypto capital of the planet.”
On Thursday, it topped US$100,000 for the first time, just hours after the president-elect said he intends to nominate cryptocurrency advocate Paul Atkins to be the next chair of the Securities and Exchange Commission.
Although several Canadian fund managers are betting bitcoin will climb higher, they also warn that the wild roller-coaster ride that has plagued this asset historically is not over.
Peter Hofstra, senior-vice-president and co-head of equities at Toronto-based CI Global Asset Management, says bitcoin is his favourite of the cryptocurrencies, but he’s also cautious about the speculative and volatile category.
“However, we have a U.S. administration that seems supportive of crypto, so demand can likely be sustained or grow in the near term,” he says.
Canadian-listed bitcoin exchange-traded funds (ETFs) first launched in 2021, but U.S.-listed spot bitcoin ETFs were only approved this year, attracting tens of billions of dollars in the first few months. Blackrock Inc.’s iShares Bitcoin Trust ETF IBIT-Q has grown to around US$48-billion in assets since launching in January, surpassing the US$33-billion in its iShares Gold Trust ETF IAU-A.
The digital coin also has fans in countries with hyperinflation because it lets them move capital digitally from their currency into another asset without going through an intermediary, says Mr. Hofstra, who oversees CI Global Alpha Innovators Corporate Class fund.
Despite his bullish outlook for the world’s largest cryptocurrency, Mr. Hofstra plans to manage that exposure by trimming his two bitcoin-related securities back to 4 per cent each if they run up.
His fund owns CI Galaxy Bitcoin ETF BTCX-U-T, which gives direct exposure to the digital coin, and Galaxy Digital Holdings Ltd. GLXY-T, a diversified equity play on digital assets.
Galaxy is involved in digital-asset trading, asset management and issuing stablecoins, which convert tokens to the value of fiat currencies such as the U.S. dollar. It also has a bitcoin miner looking to sign deals to convert its power capacity to artificial-intelligence (AI) computing.
Miners are trying to diversify their revenue given bitcoin’s preprogrammed “halving” event that occurs every four years. That reduces the block rewards they get by half, so the supply of bitcoin will be reduced to only 21 million coins by 2140.
Canadian-listed Galaxy is also aiming to get the green light from U.S. regulators to list on the Nasdaq Stock Market, Mr. Hofstra says, noting it’s another potential catalyst for the stock.
Nick Mersch, portfolio manager at Purpose Investments Inc. in Toronto, is more bullish on bitcoin because Mr. Trump promised to loosen crypto regulations and create a bitcoin strategic reserve.
“The regulatory framework has been incredibly restrictive” for cryptocurrencies in the past, says Mr. Mersch, who co-manages Purpose Global Innovators Fund PINV-T.
A bitcoin strategic reserve means the U.S. government could acquire a substantial amount of the digital coin and help drive its price higher, he adds.
Bitcoin exposure in Mr. Mersch’s fund comes from Purpose Bitcoin ETF BTCC-B-T, which he plans to limit to 5 per cent of the fund. He bought the ETF after Mr. Trump’s victory and after taking profits from his warrants in bitcoin miner Core Scientific Inc. CORZ-Q.
Mr. Mersch recently bought shares of U.S. crypto exchange operator Coinbase Global Inc. COIN-Q because he expects a higher volume of transactions in a friendlier regulatory environment.
“I am definitely bullish on bitcoin over the next two to three years, but that volatility is not going away,” Mr. Mersch says.
Bitcoin is also getting whipsawed by leveraged plays such as MicroStrategy Inc. MSTR-Q, a bitcoin holding company that borrows money to buy the asset, and by ETFs offering two or three times MicroStrategy’s daily performance.
But Alex Tapscott, portfolio manager and managing director of the digital asset group at Toronto-based Ninepoint Partners LP, expects bitcoin to become less erratic as the asset matures and as investors and governments hold it more widely.
Ninepoint Web3 Innovators Fund TKN-T, which he oversees, has a “strong bias” toward blockchain, the technology that powers bitcoin and digital-asset innovation more broadly. Mr. Tapscott says blockchain is going to transform financial services and other industries.
The Ninepoint fund, which usually has 10 per cent to 15 per cent in bitcoin, gets that exposure through CI Galaxy Bitcoin ETF and Purpose Bitcoin ETF, both of which launched in 2021.
RBC iShares, an alliance between RBC Global Asset Management and BlackRock Asset Management Canada Ltd., recently filed to launch an iShares Bitcoin ETF in Canada.
“It reflects the obvious – there is a ton of market demand,” Mr. Tapscott says.
His fund also holds Coinbase, whose blockchain called Base can increase transaction speed and reduce costs for Coinbase and anyone using it, he says.
Galaxy Digital Holdings and Bitcoin miner Hut 8 Corp. HUT-T are also top holdings in the Ninepoint fund. Block Inc. SQ-N and Paypal Holdings Inc. PYPL-Q, which are also in the fund, are digital-finance pioneers moving faster than other enterprises to embrace bitcoin and other digital assets, he adds.
Martin Lalonde, president and portfolio manager at Gatineau, Que.-based Rivemont Investments Inc., bet on bitcoin after getting regulatory approval late in 2017 to launch Rivemont Crypto Fund. Bitcoin was trading at around US$18,000 at that time.
“We think we’re in a long-term bull market,” Mr. Lalonde says. Like gold, bitcoin can be used to hedge against inflation or as a safe haven when there are geopolitical risks, but without the disadvantages of gold, whose bars are not easily divisible or transportable.
His cryptocurrency fund is now 80 per cent invested directly in bitcoin and 20 per cent in Solana, an altcoin.
Still, Mr. Lalonde expects bitcoin’s volatility to continue. The problem is that people get excited about buying bitcoin when its price is rising, but “it’s a better time to buy when it’s out of favour.”
For more articles on alternative investments, visit Globe Advisor’s Alternative Investments section.