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In a further step towards mainstream adoption, the world of crypto assets and exchange-traded funds (ETFs) have combined, bringing with it a whole range of possibilities for investors.
Following regulatory hurdles to launch a physically backed ETF in Australia, brokers have not waited around. Instead launching ETFs that allow you to invest in the suppliers of Bitcoin infrastructure as well as trade on future contracts.
But before you jump in, here is what you need to know.
How to buy Cosmos Global Digital Miners Access ETF (DIGA)
- 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 Cosmos Global Digital Miners Access ETF. Find the ETF by name or ticker symbol: DIGA.
- Decide on how much 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 Cosmos Global Digital Miners Access ETF.
How does a Bitcoin ETF work?
When you buy an ETF you take a small ownership in the underlying assets. 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
- Physically backed ETFs
The first approach is an investment in companies in the crypto ecosystem without actually owning Bitcoin itself. Instead, it is the crypto equivalent of investing in miners and suppliers of mining equipment. The second is based on futures contracts, meaning you are trading on the price of Bitcoin in the future without owning it. And the third is a physically backed Bitcoin ETF 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.
In the case of the Cosmos Global Digital Miners Access ETF (DIGA), investors are buying into a picks and shovels approach. The ETF will allow you access to companies listed globally on national exchanges whose primary business focus is on cryptocurrency mining and infrastructure.
The risks of the Cosmos Global Digital Miners Access ETF (DIGA)
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 Cosmos Global Digital Miners Access ETF (DIGA).
Instead, you will be facing most of the risks associated with Bitcoin, albeit 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 is 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. In the case of the Cosmos Global Digital Miners Access ETF (DIGA) you'll be relying on businesses that help make Bitcoin mining possible. Should Bitcoin's price fall, so could the miners meaning your ETF would be impacted.
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 regard 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?
Pros
- 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
Cons
- 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 Cosmos Global Digital Miners Access ETF (DIGA) for?
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.
