After years of waiting, Australians who want to invest in cryptocurrency assets without running the risk of directly buying coins will finally get their chance with the looming launch of a raft of crypto-focussed exchange traded products.
Australia’s corporate regulator, the Australian Securities and Investments Commission (ASIC), has finally allowed for a range of cryptocurrency-related ETFs, which should see Bitcoin and Ethereum-backed investment funds trading on the ASX in the coming months.
That move follows the launch of the first Bitcoin futures ETF in the US, after a protracted regulatory process, and the successful launch of a Canadian ETF earlier this year.
The first local ETF out of the blocks on the ASX is likely to be Australian fund manager BetaShares, which has been signing up those interested in an exchange-traded product that consists of a range of global crypto companies.
CRYP racing to get a listing
Using the ASX ticker CRYP, the fund may be floated as early as this coming week and will offer exposures to a range of “pure-play” crypto companies with balance sheets that are deeply entrenched in crypto assets, along with diversified companies with a crypto focus.
The new ASIC guidelines covering crypto exchange-traded products include a number of safeguards which should protect investors from some of the more serious scandals that have plagued the crypto industry.
Strict guidelines for security
Companies offering crypto ETF’s would need to agree to a set of best practice guidelines, including strict rules around asset custody, including the protection and storage of cryptocurrency private keys.
Such keys would need to remain in cold storage and not connected to the internet with wallets in which the keys are stored are subject to “robust physical security practices”.
Several backups will also need to be made and stored in geographically separate locations.
Custodians for crypto assets will also be required to have heightened cybersecurity protocols, and ASIC said it expects funds that offer crypto ETFs to account for some form of compensation for investors if their crypto-assets are lost or stolen.
Funds will also need to apply for an expanded financial services license that specifically permits the custody of crypto assets.
ASX role will limit coins offered
The ASX will also be required to assess which cryptocurrencies are acceptable for an ETF, including institutional support, ensuring a number of reputable service providers for the asset, a mature spot market, a regulated futures market and transparent pricing mechanisms.
That is likely to limit initial offerings to the two biggest cryptocurrencies, Bitcoin and Ethereum, although other coins may fit the bill over time.
The Betashares fund is planned to have 85% of its investments in companies whose revenue comes directly from servicing cryptocurrency markets, or have at least 75% of their assets in crypto holdings, like crypto trading platforms, miners, and the businesses that supply their equipment.
The remaining 15% of the index will be made up of investments in diversified large cap companies that have overlap with the crypto ecosystem through at least one line of business.
Some of those include Coinbase, the largest US-based cryptocurrency exchange (COIN), the Bitcoin mining company Riot Blockchain (RIOT), and business intelligence firm Microstrategy (MSTR).
Australians investing in coins already
BetaShares CEO Alex Vynokur has said that almost two million Australians have already invested in cryptocurrency directly but the market should expand once there are funds available that don’t come with the speculative risk of investing directly in tokens.
He said the Betashares fund wanted to focus on bringing investors the best of the crypto ecosystem’s “innovators” in a bid to challenge a number of industries with a “pick and shovel approach”.
Canada became the first country in the world to list a Bitcoin ETF earlier this year, amassing more than $US1 billion in assets in a single month. The US followed that lead last week, when the first bitcoin futures ETF debuted trading on the New York Stock Exchange.