Is there a crypto ETF in Australia?

Summary

• The Australian Securities Exchange is closer to releasing its first cryptocurrency exchange-traded fund (ETF), a move that will allow retail investors to invest in the asset class.
• ETFs offer investors a gateway into cryptocurrency, overcoming barriers that would otherwise prevent a mainstream investor from entering the crypto market.
• Research ASIC is conducting is part of a consultation paper that will aim to set the foundation for rules and regulations surrounding crypto ETFs.

The Australian Securities Exchange (ASX) is closer to releasing its first cryptocurrency exchange-traded fund (ETF). This move will allow retail investors to invest in the asset class, moving digital currency further into the mainstream.

Australia’s first Bitcoin exchange-traded fund is being planned by Cryptocurrency investment house, Monochrome, pending approval from the Australian Securities and Investment Commission (ASIC).

ALSO READ: Top 2 Crypto ETFs To Invest in 2021

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What is an ETF?

An exchange-traded fund is quite popular in the stock market. ETFs work similarly to traditional managed funds and give investors access to a wide range of securities. In the context of cryptocurrency, an ETF gives investors access to a wide range of different digital currencies instead of the investor putting their money into just one.

For a crypto ETF to work, the asset must be owned by the organisation managing the fund. Therefore, the ETF must own a commensurate stake of digital tokens, which are then represented as shares. Consequently, anyone investing in the ETF indirectly owns the digital currency.

ETFs offer investors a gateway into cryptocurrency, overcoming barriers that would otherwise prevent a mainstream investor from entering the crypto market.

Investing in ETFs is simple and considered safer than buying crypto through an exchange. This is because the investor bypasses the process of dealing on an exchange and instead buys the crypto using a broker.

Crypto ETFs are now available in various countries, including Canada, which launched the world’s first crypto ETF earlier this year.

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Purpose Bitcoin ETF (TSX: BTCC.B) was launched by Purpose Investments on the Toronto Stock Exchange in February 2021.

DO READ: Canada’s February ETF Sales Surge On Newly Launched Crypto ETFs

Australian Crypto ETF Proposal

The prospect of a crypto ETF listed on the ASX would indeed be a game-changer for cryptocurrency in Australia and would attract many investors into blockchain technology.

The main issue preventing crypto ETFs from moving forward in Australia lies in the lack of transparency regarding the quality of digital assets.

Without a proper auditing process of cryptocurrencies, which would be necessary to attract institutional investors, it is unreasonable to expect investors to put money into blockchain funds.

ASIC resistance

In June 2021, ASIC asked crypto stakeholders to list the benefits and drawbacks of allowing digital assets to be publicly traded. The research ASIC is conducting is part of a consultation paper that will aim to set the foundation for rules and regulations surrounding crypto ETFs.

Furthermore, ASIC is attempting to make crypto ETFs a separate category removed away from traditional commodities or stocks.

To achieve this, eligible crypto assets must prove that they possess reliable pricing mechanisms.

Additionally, there must be evidence of high support from institutions as well as service providers in place to run the EFTs.

Finally, ASIC requires a “fair, orderly and transparent trading activity” to give the green light to crypto EFTs.

If this seems like a daunting task for the crypto industry, that is because it is. In fact, even ASIC themselves acknowledge in their paper that the only cryptocurrencies currently likely to pass the strict criteria are Bitcoin (BTC) and Ether (ETH), the first and second-largest cryptocurrencies, respectively.

A further suggestion put forth by ASIC is that investors should be advised on regulatory and climatic risks associated with cryptocurrency.

ASIC also raised the concerns of criminal activity associated with cryptocurrency, including money laundering and scams.

The comments from crypto advisors are due on 27 July 2021, with ASIC’s final report due for publication in the third quarter of 2021.