Australia is set to become the eighth country in the world to allow spot cryptocurrency ETFs, beating the United States, officially going live today.
Following regulatory hurdles, Australia is now set to allow investors to gain exposure to Bitcoin through an exchange-traded fund (ETF).
Originally set to list on 27 April, 3 funds were chosen to go live on the CBOE exchange. However, at the 11th hour all 3 of these funds, including the 21Shares Bitcoin ETF, were unable to list. As of 12 May, these 3 funds are now on the market.
But before you jump in, here is what you need to know.
How to buy 21Shares Bitcoin ETF (EBTC)
- Compare online brokers. Choose a broker that will allow you to exchange on the CBOE markets.
- Open and fund your brokerage account. Complete an application with your personal and financial details. Fund your account with a bank transfer, PayPal or debit card.
- Search for the 21Shares Bitcoin ETF. Find the ETF by name or ticker symbol: EBTC.
- Decide on how many to buy and at what price. Weigh your budget against a diversified portfolio that can minimise risk through the market's ups and downs.
- Check in on your investment. Congratulations, you've invested in the 21Shares Bitcoin ETF.
How does a Bitcoin ETF work?
When you buy an ETF you take a small ownership in the underlying asset. This could be shares, commodities or in this case cryptocurrencies.
When it comes to Bitcoin ETFs they are generally in 3 categories: Picks and shovels, futures contracts and physically backed ETFs
The picks and shovels approach is basically a basket of companies that makes money off Bitcoin. The next approach is based on futures contracts, meaning you are trading on the price of Bitcoin in the future without owning it. And the physically backed Bitcoin ETF approach is where the provider will buy Bitcoin on your behalf and you will own a percentage of the Bitcoin the fund owns based on how much you invest.
The 21Shares Bitcoin ETF is the third option, allowing you to own Bitcoin through a fund.
What we know about 21Shares Bitcoin ETF (EBTC)
We know ETF Securities and 21Shares have partnered up to launch 2 ETFs: 1 exposed to Bitcoin and the other to Ethereum.
The ETFS 21 Bitcoin ETF, which allows you to buy Bitcoin through an ETF, is 1 of 3 ETFs that have received regulatory approval to list.
But the historic launch of cryptocurrency-backed exchange-traded funds that were set to begin trading 27 April has been delayed at the last minute, meaning none of them are currently listed.
Originally announced in December last year, the ETF will track the price of Bitcoin in Australian dollars and is fully backed by crypto held in cold storage by Coinbase.
In a statement last year, ETF Securities head of distribution Kanish Chugh said that the funds would allow Aussie investors to overcome some of the challenges of investing in crypto such as low exchange quality, weak custody arrangements, the risk of hacking and the potential loss of private keys and passwords.
The head of distribution noted that Bitcoin was the best performing asset over the last decade.
The risks of the 21Shares Bitcoin ETF (EBTC)
While ETFs generally have the label of being safer due to taking a diversified approach, this is not the case when it comes to the 21Shares Bitcoin ETF.
Instead, you will be facing most of the risks associated with Bitcoin, albeit you're less likely to be impacted by security risks.
And while you wouldn't invest in Bitcoin without doing your research first, the same can be said about a Bitcoin ETF as the same factors will impact the price.
Here are a few things you should be aware of:
Price volatility: Bitcoin's price is largely based on speculation, which means it can rise or fall in a short time. Owning an ETF that tracks Bitcoin's performance means you will be exposed to the same risks. It is not uncommon for Bitcoin to lose more than 10% of its value in a single day. A common piece of advice in investment circles that is applicable here is "only invest as much as you can afford to lose".
This is not a diversified ETF: Unlike many ETFs that simply track a market, this ETF will not give you the benefit of diversification. This means you will not have a basket of assets to protect your portfolio. Instead, you will be exposed purely to Bitcoin. If the price of Bitcoin falls, so does your investment.
Regulation risk: The regulatory environment for Bitcoin is still evolving. Many regulators and financial bodies around the world are reconsidering how they treat Bitcoin. This is in regards to purchasing, taxing or outright banning it. Even though Australia has fairly supportive crypto regulatory laws, the worldwide landscape is important to watch. As such, your investment is exposed to these regulatory factors.
Are cryptocurrency ETFs a good investment?
- Ease of investing compared with buying Bitcoin itself
- Allows for all your investments to be in one place
- Legally sanctioned
- More secure than buying the asset yourself
- Allows you to take a small percentage exposure to Bitcoin through ETFs
- Could be a boost for the overall market/ a new form of capital going to Bitcoin
- You will pay a management fee which is unlikely to happen if you buy physical Bitcoin
- Unlike other ETFs it is not diversified, as it is only exposed to Bitcoin
- Bitcoin is a volatile asset, meaning this ETF could also be volatile
Who is the 21Shares Bitcoin ETF (EBTC) suited to?
ETFs are widely considered one of the easiest ways for newer investors to get started. The same can be said about a Bitcoin ETF. For those who are looking to get into the space, using an ETF could be a sound strategy.
However, like any speculative investment, a Bitcoin ETF comes with some risks. As such, you should be well versed in what they are and whether the product is right for you.
A product like this will largely favour retail investors who want an easy and secure way to get started in the asset class. While you can go out and buy Bitcoin yourself, you would take on the security risks. Instead of having to remember passwords and hope your account doesn't get hacked, this product allows you to buy Bitcoin in a secure fashion. The regulator takes on these risks.
It is also a product for those who want to keep all their assets in one place. If you have a portfolio of shares, a Bitcoin ETF could be a way to gain exposure to the asset class without having the hassle of multiple trading platforms.
This particular ETF could also favour those who have a longer time horizon. Bitcoin is a highly speculative asset. While its price fluctuates greatly, historically it has been the strongest performing asset class over the last decade.
Finally, it will appeal to anyone who believes in Bitcoin. If you think the price of Bitcoin will be worth more tomorrow than it is today, using an ETF to buy this asset may appeal to you.
Disclaimer: This information should not be interpreted as an endorsement of futures, stocks, ETFs, CFDs, options or any specific provider, service or offering. It should not be relied upon as investment advice or construed as providing recommendations of any kind. Futures, stocks, ETFs and options trading involves substantial risk of loss and therefore are not appropriate for all investors. Trading CFDs and forex on leverage comes with a higher risk of losing money rapidly. Past performance is not an indication of future results. Consider your own circumstances, and obtain your own advice, before making any trades.