Evolve Funds plans Canada’s first leveraged crypto ETFs
Canadian exchange-traded funds provider Evolve Funds Group Inc. plans to launch the country’s first group of leveraged crypto ETFs with hopes of drawing back investor dollars from U.S. funds.
Evolve Funds is set to announce Tuesday that it has filed a preliminary prospectus with the Ontario Securities Commission to launch two investment funds that will provide investors the opportunity to access 1.25 times the price of bitcoin and ether.
Leveraged ETFs carry a higher risk rating than standard ETFs, as they typically aim to deliver two or three times the return on their stated underlying index. Currently, there are several U.S. asset managers that offer crypto funds with two times leverage. These funds use derivative financial instruments to amplify the underlying returns.
Evolve Funds plans to be the first in Canada to offer a more “modest leverage” on bitcoin prices by borrowing cash to purchase additional bitcoin for the fund, rather than using derivatives.
Currently the company manages Evolve Bitcoin ETF and Evolve Ether ETF, two non-leveraged funds which invest in crypto assets directly. If approved, the Evolve Levered Bitcoin ETF and the Evolve Levered Ether ETF will give a leverage of 25 per cent of their underlying assets.
The management fee for the new leveraged funds is 0.75 per cent.
Evolve’s application to launch leveraged crypto funds may attract a new wave of investors who are looking to catch up on the bitcoin craze that has seen prices climb 46 per cent since U.S. President Donald Trump’s inauguration. Mr. Trump and his administration are widely seen as friendly to the crypto industry.
“The launch of new innovative crypto products not seen in the U.S. may help Canadian crypto ETFs to catch up in flows – if the crypto market continues to rally,” Andres Rincon, an ETF analyst with TD Securities, wrote in an e-mail to The Globe and Mail.
Modest leverage, also known as “lightly levered” ETFs, use cash borrowing of between 25 per cent to 33 per cent of a portfolio’s net asset value to obtain leveraged exposure. This compares to competitors in the U.S. who typically use derivatives to leverage funds and rebalance on a daily basis.
The Evolve leveraged funds will rebalance on a monthly basis.
Another benefit, Mr. Rincon added, is that as interest rates move lower, cash leverage will also see lower borrowing costs. But he does caution, that if cryptocurrencies enter a bear market, leveraged ETFs could also see underperformance.
Crypto assets are a relatively new category of ETFs. They first launched in 2021 after Canadian regulators approved the world’s first bitcoin ETF under the ticker BTCC. Launched by Purpose Investments, the Purpose bitcoin ETF got off to a roaring start, attracting more than $160-million in investor assets on its first day of trading. Shortly after, asset managers Evolve Funds, CI Financial, Ninepoint, 3iQ and Horizons ETFs Management (Canada) Inc. also began to trade similar bitcoin and ether funds.
It took U.S regulators until early 2024 to greenlight similar investments south of the border.
With global players such as BlackRock Inc. now entering the ring, Canada-listed crypto funds suffered five consecutive months of outflows in 2024, according to a recent report by National Bank Financial. ETF analyst Daniel Straus attributed the timing of the redemptions to when a “slew of U.S. spot bitcoin ETFs finally launched south of the border.”
By year end, crypto asset ETFs were the only asset class among Canadian-listed ETFs to see investor redemptions in 2024 – with more than $1.1-billion being pulled out by investors, NBF said.
Mr. Straus added in the report that part of the reason investors made the flip is that Canadian crypto-asset ETFs on average have “higher expense ratios and lower onscreen volume compared with many of their U.S. counterparts.”
Some Canadian ETF providers – including Fidelity Investments Canada ULC – recently lowered their management fees to compete with U.S. funds.