After months of consultations with the industry, Australia's securities watchdog, the Australian Securities and Investments Commission (ASIC), has given the green light to the long-awaited place exchange-traded funds (ETFs) in the world's two largest cryptocurrencies, Bitcoin and Ethereum.
Key takeaways
- Australia's regulator has approved exchange-traded funds (ETFs) in the world's two largest cryptocurrencies, Bitcoin and Ethereum.
- ASIC has provided best practice guidelines and requirements for Bitcoin ETF issuers, with an emphasis on the protection and storage of crypto assets.
- The crypto industry generally supports spot Bitcoin funds over futures-backed Bitcoin funds as they provide a higher level of accuracy, stability, and transparency.
- Australia's move to provide regulatory clarity for physically backed crypto ETFs sets a framework for other counties to follow.
The approval will allow Australian investors to gain direct exposure to the price of physical assets through publicly traded funds. Australian Stock Exchange (ASX). It also solidifies Australia's intention towards digital innovation and opens the door for regulators in other jurisdictions to accelerate crypto ETFs as the asset class continues to gain momentum with investors.
Regulatory guidelines
Last week, ASIC published a set of best practice guidelines and requirements that fund issuers must adhere to when offering Bitcoin ETFs, with the regulator placing a particular emphasis on the protection and storage of cryptocurrency assets. For instance, private keys, The equivalent of a master password, must remain offline in cold storage and you must adhere to "sound physical security practices." Additionally, fund issuers will need to make multiple backup copies of private keys stored in separate geographic locations. They must also appoint a Bitcoin custodian expert who "will be asked to ensure that crypto assets are kept in a safe place and safe custody, "according to the watchdog.
TO private key is a sophisticated form of cryptography that allows a user to access their cryptocurrency. A private key is an integral aspect of Bitcoin and altcoinsand its security structure helps protect the user from theft and unauthorized access to funds.
TO private key is a sophisticated form of cryptography that allows a user to access their cryptocurrency. A private key is an integral aspect of Bitcoin and altcoinsand its security structure helps protect the user from theft and unauthorized access to funds.
"We recognize the interest and demand for quoted products (ETP) and other investment products that have crypto assets in Australia. However, we are also aware of the real risk of harm to consumers and markets if these products are not developed and operated properly, "ASIC wrote in a statement published last week, according to Business Insider Australia.
Other requirements that Bitcoin ETF issuers must meet include having a minimum of AU $ 10 million (US $ 7.38 million) net. tangible assets and adhere to various pricing, disclosure and risk management obligations.
Spot ETFs vs. Futures ETFs
ASIC approval of a spot-backed ETF comes just several weeks after the Securities and Exchange Commission (SEC) gave the go-ahead to a futures-backed ProShares Trust, the ProShares Bitcoin Strategy ETF (Bit), in the U.S. The crypto industry generally backs Bitcoin funds that hold the physical asset over those that track derivative-based Bitcoin futures, as they provide a higher level of accuracy, stability, and transparency.
Crypto purists argue that futures-backed ETFs do not reflect the current spot value of bitcoin, given that futures contracts Require two parties to agree to buy or sell bitcoins to one default price and date. As a result, premiums or discounts on the actual price of bitcoin may occur.
Altcoin ETF in Focus
Although ASIC at this stage has only given the green light to Bitcoin and Ethereum ETFs, fund managers see the move as a key stepping stone to the approval of funds with smaller cryptocurrencies, known as altcoins. "This will represent a breakthrough as investors will finally be able to access Bitcoin through a liquid investment vehicle. As other digital assets mature, we expect the reach to expand, "VanEck's CEO for Asia and the Pacific, Arian Neiron, told The Australian Financial Review.
As of November 2021, altcoins accounted for nearly 60% of the total cryptocurrency market, with over 10,000 cryptocurrencies and counting.
As of November 2021, altcoins accounted for nearly 60% of the total cryptocurrency market, with over 10,000 cryptocurrencies and counting.
While it is unclear how many spot Bitcoin ETFs are awaiting ASIC approval, it is understood that BetaShares, VanEck, and Cosmos Asset Management have other crypto products in the works.
Crypto Investing finds Main Street in Australia
Australian investment managers are likely to continue stepping up their crypto offerings after the stellar launch earlier this week of the Crypto Innovators ETF (CRYP.AX), which recorded the highest tickets of any ETF in ASX's history during the first hour of trading. The country also reaffirmed itself as a crypto-friendly jurisdiction, with the Commonwealth Bank of Australia (CMWAY) recently announced that it plans to offer its 6.4 million customers the ability to buy, sell and hold cryptocurrencies directly through its app. Additionally, Australia's move to provide regulatory clarity for physically backed crypto ETFs establishes a structure for other counties to follow if they wish.
Disclosure: The author did not hold positions in the aforementioned securities at the time of publication.
