Following the launch of the first Bitcoin ETFs in America, is an Australian fund now on the cards?
What is an ETF?
An ETF (Exchange Traded Fund) is a publicly traded vehicle that gives investors price exposure to an underlying asset, or basket of assets, without having to hold the underlying directly. This can be convenient in cases where investors want exposure to a sector or industry, or to assets that entail more complex custodial solutions than traditional investments such as stocks or bonds. Cryptocurrencies often represent such an asset to traditional investors, requiring exchange accounts or custodial wallets that are unique to crypto. In short, a Bitcoin ETF is likely to bring new investors to the party and increase the market share for digital assets.
What’s next for crypto ETFs?
Following the launch of the BetaShares Crypto Innovators ETF in October, Australia already has an ETF that gives investors exposure to the crypto sector. However, the fund is composed of businesses providing infrastructure and services to the industry and does not give direct exposure to crypto assets such as Bitcoin itself. If we are witnessing the digital gold rush, then this fund gives you exposure to the digital picks and shovels but not to the digital gold itself. Alex Vynokur, the chief executive of BetaShares, was recently quoted as saying that he believes it is just a matter of time until Australians have access to a Bitcoin ETF, and that his firm would be interested in offering one.
What’s the problem?
The main problem for the Australian Securities and Investments Commission (ASIC) is regulatory uncertainty regarding custody of crypto assets in the absence of a clear legal and regulatory framework, and this is undoubtedly something that will need resolving before things can move forward. Yet, following the long-awaited approval by the SEC (Securities and Exchange Commission) of two American Bitcoin ETFs in October, Australian funds are now increasingly hopeful that their government will also give the green light to a fund with direct digital asset exposure. This has proven true, as ASIC recently provided guidelines for Australian spot crypto ETPs.
In fact, the American ETFs that have already been approved do not have to hold Bitcoin in order to offer price exposure, but do so by giving exposure to the Bitcoin futures market. A futures contract is a kind of derivative that offers price exposure without requiring custody of the underlying asset. So, while an ETF based on futures is two steps away from the underlying asset, it is already one step closer than the options Australian investors currently have to choose from.
A Speedy Resolution?
While the precise details of Australia’s new crypto policy are yet to be revealed, some at least within the government hope to make Australia a global hub for the industry and crypto-friendly senator Andrew Braggs is hopeful that new legislation might be in place by 2022. With reports that over a million Australians already own crypto assets, regulatory clarity regarding custody of crypto assets can only help promote growth in the industry and continue to attract new investors.