Australia approves long-awaited Bitcoin Spot ETF

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After months of industry consultation, the Australian securities regulator, the Australian Securities and Investments Commission (ASIC), has given the green light to the long-awaited spot exchange-traded funds (ETFs) in the two largest major cryptocurrencies of the world, Bitcoin and Ethereum.

Key Takeaways Australia’s regulator has approved spot 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 a focus on the protection and storage of crypto assets. The industry generally supports Bitcoin cash funds over Bitcoin funds backed by futures, as they offer a higher level of accuracy, stability and transparency. Australia’s decision to clarify the regulations for physically backed crypto ETFs sets a framework for other countries to follow.

The approval will allow Australian investors to gain direct exposure to the price of physical assets through funds traded on the Australian Securities Exchange (ASX). It also cements Australia’s intention for digital innovation and opens the door for regulators in other jurisdictions to accelerate spot crypto ETFs as the asset class continues to gain traction with investors.

Regulatory Guidance

ASIC last week released a set of best practice guidelines and requirements that fund issuers should follow when offering Bitcoin ETFs, with the regulator placing particular emphasis on protecting and storing cryptocurrency assets. For example, private keys, the equivalent of a master password, must remain offline in cold storage and must adhere to “strong physical security practices.” In addition, fund issuers will be required to perform multiple backups of private keys stored in separate geographic locations. They must also appoint a Bitcoin custody expert who will be “necessary to ensure that crypto-assets are held securely,” according to the watchdog.

A private key is a sophisticated form of cryptography that allows a user to access their cryptocurrency. A private key is an integral part of Bitcoin and altcoins, and its security configuration helps protect a user from theft and unauthorized access to funds.

“We recognize the interest in and demand for Exchange Traded Products (ETPs) and other investment products that hold crypto assets in Australia. However, we are also aware of the real risk of harm to consumers and the markets if these products are not developed and operated properly. ” ASIC wrote in a statement released last week, by Business Insider Australia.

Other requirements that Bitcoin ETF issuers must meet include holding at least A $ 10 million (US $ 7.38 million) in net tangible assets and meeting various pricing, disclosure requirements. and risk management.

Cash ETFs vs. Futures ETFs

The ASIC’s approval of a spot-backed ETF comes just weeks after the Securities and Exchange Commission (SEC) gave the green light to a forward-backed ProShares Trust, the ProShares Bitcoin Strategy ETF ( BITO), in the United States. The crypto industry generally supports Bitcoin funds that hold the physical asset over those that track derivative-based Bitcoin futures, as they offer a higher level of accuracy, stability, and transparency. .

Crypto purists argue that ETFs backed by futures contracts do not reflect the current spot value of bitcoin, given that futures contracts require two parties to agree to buy or sell bitcoin at a price. and on a predetermined date. As a result, bonuses or discounts from the actual price of bitcoin may occur.

Focus on Altcoin ETFs

Although at this point, ASIC has only given the green light to Bitcoin and Ethereum ETFs, fund managers see this decision as a key stepping stone for the approval of funds holding smaller cryptocurrencies, called altcoins. “This will be a huge step forward, as investors will finally be able to access Bitcoin via a liquid and profitable investment vehicle. As other digital assets mature, we expect the reach to expand,” a said VanEck Managing Director Asia-Pacific Arian Neiron. told the Australian Financial Review.

As of November 2021, altcoins made up almost 60% of the total cryptocurrency market, with over 10,000 cryptocurrencies and in cash.

While it is not yet known how many Bitcoin Spot 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 will likely continue to strengthen their crypto offerings after the stellar launch earlier this week of the Crypto Innovators ETF (CRYP.AX), which recorded the highest entries of any ETF in history. of the ASX during the first hour of trading. The country has also reasserted itself as a cryptocurrency-friendly jurisdiction, with the Commonwealth Bank of Australia (CMWAY) recently announcing 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 decision to clarify the regulations for physically backed crypto ETFs establishes a framework that other countries must follow if they so choose.

Disclosure: The author did not hold any position in the above titles at the time of publication.

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