Australians will soon see the launch of the country’s first Bitcoin ETF (exchange-traded fund).
In April, a number of proposed ETFs from funds including Cosmos Asset Management and ETF Securities received approval by ASX Clear to start trading on the Cboe Australia Exchange (an alternative trading platform for Australian-listed securities).
These funds are set to begin trading this Thursday, once Cboe completes final regulatory checks and processes - following a two-week delay.
This even includes a spot Bitcoin ETF and Ethereum ETF - products that haven't yet been approved in the US.
This historic launch is set to attract a much wider range of Aussie investors to the crypto market.
ETFs provide exposure to crypto assets through a traditional product that is regulated and managed by the firms who provide and list it.
For consumers, it allows them to gain exposure to digital assets through more traditional channels as an alternative to directly holding crypto assets.
For the industry, it's a milestone moment for the adoption of digital assets.
Here are six things to know about crypto ETFs if you want to better understand how they work and the role they are set to play in the wider crypto ecosystem.
1. Not all crypto ETFs are the same
Crypto ETFs vary in the type of exposure they offer, depending on which fund it is. The Cosmos ETF will provide exposure to Bitcoin through the Purpose Bitcoin ETF, listed in Toronto, Canada, which was the world’s first Bitcoin ETF.
Similarly, another two ETFs proposed are the 3iQ CoinShares Bitcoin Feeder ETF and 3iQ CoinShares Ether Feeder ETF, which will provide exposure to Bitcoin and Ether by purchasing units in two of 3iQ’s existing ETFs - both also listed on the Toronto Stock Exchange.
The above are different to the proposed ETFS 21Shares Bitcoin ETF (EBTC) and the ETFS 21Shares Ethereum ETF (EETH). These ‘spot ETFs’ will actually track the price of Bitcoin and Ether in Australian dollars, fully backed by the respective assets held in cold storage (storage that is not connected to the network or internet).
In the US, there are the Proshares and Valkyrie ETFs, which are futures-based funds. This means they hold Bitcoin Futures Contracts (not spot Bitcoin, like the above proposed funds). Currently, no spot Bitcoin ETF has been approved by the Securities and Exchange Commission (SEC) in the US.
There are also various ETFs that invest in crypto companies, rather than the crypto market itself.
2. They won’t be on the ASX just yet
For Australians planning to invest in the above ETFs, the process will be the same as investing in any other ETF except the exchange platform may differ. The Cosmos ETF, ETFS 21Shares funds, and 3iQ Coinshares funds are set to be listed on Cboe Australia.
The ASX has not approved the listing of any ETFs on its exchange as of this moment.
However, this may be set to change. Just last week, the ASX unveiled new amendments to its operating rules that formally added digital assets to the list of eligible underlying instruments that ASX-listed funds can invest in.
Some speculate this means we will see a crypto ETF on the ASX in around 6-8 weeks’ time, although we know from Cboe delays that this may be much longer.
3. It’s not the same as investing directly
While the launch of crypto ETFs is a milestone for the adoption of digital assets, it’s worth highlighting it isn’t necessarily a watershed moment for accessibility as each layer of abstraction away from the underlying asset can add risk and cost. Investing in a fund (an ETF) which holds crypto is different to holding crypto directly. The fees, level of security, and ease of access are different. Crypto exchanges offer direct on-ramps and off-ramps for institutions and retail clients for Bitcoin and many other crypto assets at a fraction of the fees.
4. It’s a signal the crypto industry is maturing
The launch of these ETFs is a good measure of where Bitcoin is in its adoption journey. We can only assume the launch of more traditional products will encourage further adoption in Australia. Giving people more options to get exposure to crypto is a sign the market is maturing.
In particular, an ETF addresses some of the regulatory uncertainty that surrounds physical Bitcoin – in part because it places accountability and responsibility squarely on the shoulders of the firms who provide and list it. This may be more appealing to some Australians who don’t want to worry about holding Bitcoin directly in their own wallet or on an exchange.
5. The demand for crypto ETFs is strong
There is speculation $1 billion will flow into the country’s first Bitcoin ETF, whichever one makes it to trading day first. Whether this figure will be met is very difficult to predict. It’s likely we could see a spike in demand in the first days of trading, but it will be interesting to see if this can be sustained over a longer period of time.
6. It’s been a race to get here and there’s more to come
The ETFs listed above are not the only ones waiting to launch in Australia. The race to be the first ETF to launch has included a few different funds. Those currently working on ETFs include: Cosmos Asset Management, ETF Securities, 3iQ Coinshares, VanEck Australia, BetaShares and Monochrome Asset Management.
One of the reasons for delays has been the upfront cost required. ASX Clear, the clearing house for all shares, structured products, warrants and equity derivatives traded on the ASX and other approved market operators, requires crypto funds to have a margin of 41 per cent lodged against each trade because of Bitcoin’s volatility.
Right now, only two funds (Cosmos Asset Management and ETF Securities) have formally been approved in line with this criteria and will officially launch this Thursday (May 12), and one more (3iQ Coinshares) is currently being reviewed for clearance against this.
It’s an exciting time to watch these developments unfold.
As always, it's worth remembering that it's early days for the crypto industry and this launch is just another step towards the maturation and broader adoption of the digital asset class.
Jonathon Miller is a crypto expert and managing director of Kraken Australia.