Australia has become one of the first pure play Bitcoin ETF providers, with the Cosmos-Purpose Bitcoin Access ETF launching 12 May on the CBOE exchange.
This follows an initial hiccup in launching on 27 April, with Cosmos and 2 ETF Securities products being pulled at the 11th hour all three products are now live.
But before you jump in, here is what you need to know.
How to buy the Cosmos Purpose Bitcoin Access ETF (CBTC)
- Compare online brokers. To invest in the CBTC ETF, you'll need to sign up to an ETF broker platform with access to the CBOE exchange in Australia. Our table below can help you choose.
- Open and fund your brokerage account. Complete an application with your personal and financial details, such as your ID and tax file number. Fund your account with a bank transfer, PayPal or debit card.
- Search for the Cosmos Purpose Bitcoin ETF. Find the ETF by name or ticker symbol: CBTC. Research its history to confirm it's a solid investment against your financial goals.
- Purchase now or later. Buy today with a market order or use a limit order to delay your purchase until the Purpose Bitcoin ETF reaches your desired price. To spread out your risk, look into dollar-cost averaging, which smooths out buying at consistent intervals and amounts.
- Decide on how many to buy. At today's 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 Purpose Bitcoin ETF. Optimise your portfolio by tracking how your ETF performs with an eye on the long term.
What we know about the Cosmos CBTC ETF
Cosmos Asset Management has teamed up with Canadian fund provider Purpose Investment to launch one of the first physically backed ETFs.
The duo has beaten out local rivals including VanEck and Betashares and was set to be one of the first 3 pure play crypto ETFs on the Australian market.
Acting like a regular ETF, the fund will allow you to benefit from the price of Bitcoin, without needing to own any of the coins yourself directly. Instead, acting like a trust, Cosmos Purpose will buy the coins on behalf of the shareholders.
While the 3 crypto ETFs are widely predicted to see over $1 billion in assets under management in just the first few days, it is still unknown when they will launch.
Having originally told the market that they would begin trading on 27 April, at the last minute all 3 Bitcoin ETFs were pulled. A new date is yet to be determined.
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 and physically backed ETFs.
Picks and shovels is basically a basket of companies that make money off Bitcoin.
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.
The Cosmos Purpose Bitcoin Access ETF is the third option, allowing you to own Bitcoin through a fund.
The risks of the Cosmos Purpose Bitcoin Access ETF
Despite retail investors thinking ETFs are safer, in the case of the Cosmos Purpose Bitcoin Access ETF, you won't have a lot of the usual benefits from ETFs.
This is not a diversified ETF.
Instead, you will be facing most of the risks associated with Bitcoin, albeit you're less likely to be impacted by security risks.
While you wouldn't invest in pure Bitcoin without doing your research first, the same could be said for this Cosmos Purpose Bitcoin Access ETF. 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
- 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 Purpose Bitcoin Access ETF (CBTC) 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.