All About Australian Cryptocurrency ETFs

After months of industry consultations, the Australian Securities and Exchange Commission (ASIC) has given the green light to long-awaited exchange-traded funds (ETFs) in the world’s two largest cryptocurrencies, Bitcoin and Ethereum.

The approval will enable investors in Australia to gain direct exposure to the price of physical assets through listed funds on the Australian Stock Exchange (ASX). It also reinforces Australia’s focus on digital innovation. It opens the door for regulators in other jurisdictions to expedite verification of cryptocurrency ETFs as the asset class continues to gain traction among investors.

Regulatory Guidelines

Recently, ASIC launched a set of best practice guidelines and requirements for issuers to follow when offering Bitcoin ETFs. The regulator placed a strong emphasis on protecting and storing cryptocurrency assets. For example, the equivalent of a master password, private keys must remain offline in cold storage and adhere to “strict physical security practices.” 

A private key is a form of encryption that allows a user to access the cryptocurrencies in their wallet. A private key is an important part of Bitcoin and altcoin, and its security features help protect the user against theft and unauthorized access to funds.

“We recognize the interest and demand for exchange-traded products (ETPs) and other investment products containing cryptocurrencies in Australia. But, we are also mindful of the real risk of harming consumers and markets if these products are not properly recognized.” ASIC wrote in a statement recently by Business Insider Australia.

Bitcoin ETF issuers must meet other requirements, including holding a minimum of 10 million Australian dollars intangible liquid assets and meeting various pricing, disclosure, and asset management.

Cash ETFs vs. Future ETF 

ASIC’s approval of a secured ETF comes weeks after the Securities and Exchange Commission (SEC) approved a futures-backed ProShares Trust, the BITO (ProShares Bitcoin Strategy ETF), in the U.S. The cryptocurrency industry generally accepts bitcoin funds that hold physical assets over those that pursue derivative-based bitcoin futures because they offer a higher level of accuracy, stability, and transparency.

Cryptocurrency purists claim that ETFs backed by futures contracts do not reflect the current spot value of bitcoin because futures contracts require two parties to agree to buy or sell bitcoin at a price and on a predetermined date. As a result, there may be rewards or discounts on the actual bitcoin price.

While ASIC has only given the green light to Bitcoin and Ethereum ETFs at this stage, fund managers believe the move is a key step towards approving funds holding smaller cryptocurrencies, called altcoins. . This will be a breakthrough as investors will finally be able to access Bitcoin through a liquid and cost-effective investment vehicle. As more digital assets mature, we expect coverage to expand. 

As of November 2021, altcoins accounted for almost 60% of the total crypto market, with over 11,000 cryptocurrencies growing.

While it is unclear how many Bitcoin ETFs are awaiting ASIC approval, it is believed that Cosmos Asset Management, VanEck, and BetaShareshave other cryptocurrencies in the works.

Crypto Investing meets Main Street in Australia.

Australian investment managers will continue to shore up their cryptocurrency offerings following the stellar launch recently of the CRYP.AX (Crypto Innovators ETF) which saw the largest ETF inflows in the history of the ASX during its first trading period. The country has also established itself as a crypto-friendly jurisdiction. The Commonwealth Bank of Australia (CMWAY) recently announced plans to offer its 6.4 million customers the ability to hold, buy, and sell cryptocurrencies instantly through its application. In addition, Australia’s move to clarify regulations for hard-to-support cryptocurrency ETFs establishes a framework that other countries can follow if they wish.

Summary

  • ASIC provided guidelines and best practice requirements for issuers of Bitcoin ETFs, focusing on cryptocurrency protection and storage.
  • Australia’s move to clarify rigid cryptocurrency ETF regulations sets a framework for other countries to follow.
  • The Australian regulator has approved exchange-traded funds (ETFs) in the world’s two largest cryptocurrencies, Bitcoin and Ethereum.
  • The cryptocurrency industry generally accepts Bitcoin spot funds rather than funds backed by Bitcoin futures, as they offer stability, a higher level of accuracy, and transparency.