Evolve Bitcoin ETF -- summary under Crytocurrency Funds
Overview
Evolve ETF proposes to track the most current month of Bitcoin futures, except that it will be necessary, as the contract approaches maturity each month, to sell it and purchase the next month’s contract. The Bitcoin futures trade in Chicago, and the Trust will take the position that it is not a "SIFT trust." The gains (on income account) realized monthly on the futures’ rollovers (or annually, if it elects under draft s. 10.1(1)), will be distributed in the last half of December each year in cash or in Units – and to this end it will elect under s. 132.11(1) to have a December 15 year-end (so that such distributions are back-dated to December 15.) Units are redeemable at any time at NAV provided that they are tendered in multiples of a specified minimum number (a “PNU”). Units in smaller quantities are redeemable at any time at 95% of their trading price.
Evolve ETF
The Evolve ETF is a mutual fund established under the laws of Ontario which has applied to have its units listed on the TSX.
Manager and trustee
Evolve Funds Group Inc. is the promoter, manager, trustee and portfolio manager of the Evolve ETF and is responsible for the administration of the Evolve ETF.
Offering of Units
The Evolve ETF is offering units (“Units”) consisting of hedged units ("Hedged Units") and U.S. dollar denominated unhedged units ("Unhedged Units"). Hedged Units are denominated in Canadian dollars and Unhedged Units are denominated in U.S. dollars. Evolve ETF will enter into FX hedging contracts in order to deliver Canadian dollar returns on the Hedged Units.
Rolling of CBOE Bitcoin Futures
In order to achieve its investment objective, the Evolve ETF obtains exposure to CBOE Bitcoin Futures expiring in the current month or the next following month of the contract. It will typically invest in or obtain exposure to the nearby-month CBOE Bitcoin Futures, and periodically the positions in that contract that will expire in the near future will be sold, with the nearby-month CBOE Bitcoin Futures for the next following month being purchased.
95% redemption right
In addition to the ability to sell Units on the TSX, Unitholders may also on any Trading Day redeem Units for cash at a redemption price per Unit equal to 95% of the closing price for the Units on the TSX on the effective day of redemption, subject to a maximum redemption price per Unit equal to the NAV per Unit on the effective day of redemption, less any applicable administrative fee determined by the Manager, in its sole discretion, from time to time.
PNU redemptions
The Prescribed Number of Units (PNU) means the number of Units determined by the Manager from time to time for the purpose of subscription orders, redemptions or for other purposes. Unitholders may redeem the PNU (or an integral multiple thereof) of the Evolve ETF on any Trading Day for cash.
Redemption suspension
The Manager may suspend the redemption of Units or payment of redemption proceeds of the Evolve ETF: (i) during any period when normal trading is suspended on a stock exchange or other market on which securities owned by the Evolve ETF are listed and traded, if these securities represent more than 50% by value or underlying market exposure of the total assets of the Evolve ETF, without allowance for liabilities, and if these securities are not traded on any other exchange that represents a reasonably practical alternative for the Evolve ETF; or (ii) with the prior permission of the securities regulatory authorities where required, for any period not exceeding 30 days during which the Manager determines that conditions exist which render impractical the sale of assets of the Evolve ETF or which impair the ability of the Custodian to determine the value of the assets of the Evolve ETF.
Distributions
The Evolve ETF is not expected to make regular cash distributions.
Fees
The management and administration fees are 0.80% and 0.15%, respectively, of NAV.
Contango/backwardation
Because bitcoin and bitcoin Futures Contracts have an extremely limited price history, the extent to which contango or backwardation may exist in bitcoin futures markets is unclear. Extended periods of contango or backwardation could cause significant losses for the Evolve ETF.
Canadian tax consequences
Disposition or redemption of Units
A Unitholder who disposes of a Unit held as capital property, including on a redemption, will generally realize a capital gain (or capital loss) to the extent that the proceeds of disposition (other than any amount payable by the Evolve ETF which represents income allocated and designated to the redeeming Unitholder), net of costs of disposition, exceed (or are less than) the adjusted cost base of that Unit.
Status as MFT
The Evolve ETF is expected to meet the mutual fund trust requirements on or before the 91st day after the end of its first taxation year. If the Evolve ETF does not qualify as a "mutual fund trust" throughout a taxation year, it may be liable to pay alternative minimum tax and Part XII.2 tax, and may be subject to the "mark-to-market" rules if more than 50% of the fair market value of its Units are held by "financial institutions."
Status as non-SIFT trust
Bitcoin Futures trade on the CBOE (in Chicago). The Evolve ETF intends to take the position that it will not use its derivative instruments (or any other property) in the course of carrying on a business in Canada and, therefore, will not be a "SIFT trust." On that basis, it is anticipated that the Evolve ETF will make sufficient distributions in each year of any income realized by the Evolve ETF for Canadian tax purposes in the year so as to ensure that it will not be subject to Canadian income tax on such income.
Taxation year
The Evolve ETF will elect to have a taxation year that ends on December 15 of each calendar year.
Taxation of gains on Futures’ rollover
The Evolve ETF must pay tax on its net income for a taxation year, less the portion thereof that it deducts in respect of the amount paid or payable to its Unitholders in the calendar year in which the taxation year ends. In general, gains and losses realized by the Evolve ETF from Derivative transactions will be on income account, and such gains and losses will be recognized for tax purposes at the time they are realized by the Evolve ETF. Under the 8 September 2017 draft legislation, an election to realize gains and losses on "eligible derivatives" of the Evolve ETF on a mark-to-market basis may be available under draft s. 10.1. The Manager will consider whether such election, if available, would be advisable. If the Evolve ETF experiences a "loss restriction event," it will become subject to the loss restriction rules generally applicable to a corporation that experiences an acquisition of control.
Late December distributions of income
If, for any taxation year there otherwise be remaining income, the Evolve ETF will be required to pay or make payable in December after the 15th such net income as one or more special year-end distributions of Units or cash to Unitholders as is necessary to ensure that it will not be liable for income tax on such amounts.
Income allocation on redemptions
Pursuant to the Declaration of Trust, the Evolve ETF may allocate and designate as payable any income realized by the Evolve ETF as a result of any disposition of property of the Evolve ETF undertaken to permit or facilitate the redemption of Units to the redeemed Unitholder. In addition, the Evolve ETF has the authority to distribute, allocate and designate any income to a Unitholder who has redeemed Units during a year in an amount equal to the Unitholder's share, at the time of redemption, of the Evolve ETF's income for the year. Any such allocations and designations will reduce the redemption price otherwise payable to the Unitholder and, therefore, the proceeds of disposition.
Taxation of income distributions to Unitholders
A Unitholder will generally be required to include in computing income for a taxation year the net income of the Evolve ETF as is paid or becomes payable to the Unitholder (whether in cash, in Units or a management fee distribution). Amounts paid or payable in December after the 15th are deemed to have been paid on December 15.