Australia’s first spot Bitcoin ETF launches today
You can now own a small stake in Bitcoin or Ethereum through 3 ETFs.
The worlds of exchange-traded funds (ETFs) and cryptocurrencies have collided, with investors now able to gain direct ownership of Bitcoin and Ethereum through an ETF.
Initially coming to Australia through 2 providers, these 3 ETFs will mean Australia is now the 8th country in the world to offer direct exposure to Bitcoin.
The first 2 ETFs, ETFS 21Shares Bitcoin (EBTC) and ETFS 21Shares Ethereum (EETH), have begun trading on the CBOE exchange today, with the broker saying this is the first of its kind in Asia.
ETF Securities head of distribution Kanish Chugh highlights the ongoing work with regulators since 2017, while pointing out the benefits of buying a cryptocurrency ETF in today's market.
"Australian investor interest in cryptocurrencies has not waned in recent months even as we have seen underperformance and with Bitcoin's recent sell off as well, it may present an opportunity for investors who have been looking for attractive entry points into this new asset class."
The third option for investors is the Cosmos- Purpose Bitcoin Access ETF is another physically backed Bitcoin ETF. In this instance, Cosmos is in a partnership with the first ever Bitcoin ETF provider Purpose.
Cosmos Asset Management CEO Dan Annan said the fund would provide investors with Bitcoin exposure in a familiar manner.
"This gives investors a secure and easy way to introduce cryptocurrency to their asset allocation mix using the same tried-and-tested process they are already well acquainted with, and in a liquid and well-regulated market," he explains.
How does it all work?
All 3 ETFs are following similar models.
The 2 ETF Security products will give you direct access to Bitcoin and Ether (Ethereum's transaction token) as the broker will buy it on your behalf.
According to the company's statement the funds do not use derivatives of any kind. They are not built as feeder funds into offshore ETFs. Nor do they engage in any lending or staking of Bitcoin and Ether.
ETF Securities said all Bitcoin and Ether is held offline ("cold storage") and in Faraday cages, meaning away from the Internet and away from any uncontrolled flows of electricity. This substantially reduces the risk of hacking.
Much the same is the Cosmos ETF. Day-to-day, Bitcoin in the Purpose Bitcoin ETF is held in a secure, offline wallet, which is disconnected from the internet, significantly reducing the risk of theft. Bitcoin that is not in frequent use will be put in storage with custodian Gemini Trust Company.
Perks of a cryptocurrency ETF
The main perk of these assets are they take much of the hassle of direct investing out, through buying an ETF.
As such, it says buying Bitcoin and Ether through an ETF has 3 main benefits for consumers:
- Bitcoin ETFs have better security. ETFs have institutional grade security. These ETFs have been around in Europe for a couple of years now and are yet to get hacked.
- Fee structure. While you will pay a fee regardless, ETFs charge management fees, while exchanges charge transaction or other forms of fees. The broker says because it's on a regulatory exchange with more competition it will be a lower fee product.
- ETFs fit into self-managed super funds (SMSF), with better tax arrangements. Due to being related these ETFs will have tax and super benefits. Buying directly into your SMSF might be more difficult.
Sceptics in the sector remain
Despite gaining more mainstream adoption, Bitcoin and Ethereum still have their sceptics.
In its latest shareholder meeting last week Berkshire Hathaway's CEO Warren Buffett and vice chairman Charlie Munger took turns bashing crypto assets.
Buffett, who many consider the greatest investor of all time, questions its use case.
"Whether it goes up or down in the next year, or 5 or 10 years, I don't know. But the one thing I'm pretty sure of is that it doesn't produce anything," Buffett told reporters.
He also highlights that Bitcoin doesn't produce a passive income, unlike other assets ranging from shares, to apartments and even farmland.
"If you told me you own all of the Bitcoin in the world and you offered it to me for $25, I wouldn't take it because what would I do with it?" He said during last week's meeting. "I'd have to sell it back to you one way or another. It isn't going to do anything."
Munger went a step further saying he avoids things that are "stupid and evil".
"In the first place, it's stupid because it's still likely to go to zero. It's evil because it undermines the Federal Reserve System ... and third, it makes us look foolish compared to the Communist leader in China. He was smart enough to ban Bitcoin in China," Munger told investors.
Bottom line
A cryptocurrency-based ETF is just another step towards mainstream adoption. And whether or not it is for you largely depends on your views on the sector moving forward.
If you think Bitcoin and Ethereum are investable assets, then this is just another vehicle to invest.
In fact, through a product like this, much of the hassle of trading Bitcoin and Ethereum is removed, but like all ETFs you'll pay for the privilege in terms of management fees.
But on the flipside, if you are a sceptic of cryptocurrencies, gaining exposure to it even through an ETF might not be for you.
Regardless of your views, remember these are still speculative assets, despite falling under the umbrella of an ETF.
As such, this is probably not an ETF that you can put all your money into and just rely on multi-decade returns. Instead it is probably one you need to pay close attention to.
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