Following the New York Stock Exchange’s listing of a Bitcoin Futures Exchange Traded Fund (ETF), the Australian Securities and Investments Commission (ASIC) has approved a Bitcoin and Ethereum-backed ETF.
This is a monumental occasion as a spot ETF legitimises the asset class of cryptocurrency. In ASIC’s announcement, the regulator released a set of guidelines for the listing of cryptocurrency ETFs. Rather than purchasing a specific stock or a cryptocurrency, an ETF acts as a bundle of assets giving consumers wider exposure to cryptocurrency without the same level of risk. Additionally, crypto ETFs encompass adjacent assets, such as blockchain companies, crypto miners, or centralised exchanges.
Right now, the only Bitcoin ETFs that can be traded are those backed by futures. This means that the company providing the Bitcoin ETF does not hold any cryptocurrency. Instead, they mimic the price of Bitcoin and buy according to price on or before a specified date in the future. The problem with this type of ETF is that it does not impact the price of cryptocurrency. ASIC has worked since June to develop a plan that appropriately regulates a cryptocurrency ETF.
Amongst its guidelines, ASIC emphasised strict rules around crypto custody and protection of crypto assets. Cryptocurrency is still viewed as a highly volatile asset class with many scams and bad actors in the field. If large institutions are going to pour in billions of dollars through spot-back Bitcoin ETFs, there must be measures in place to ensure the protection of the assets. ASIC has suggested that cryptocurrency passwords (or keys) be held in offline storage. Additionally, crypto custodians will be required to prove stringent cybersecurity protocols to ensure the safety of crypto assets. This will mean that if there is a breach, the company responsible for listing the Bitcoin ETF will be required to compensate investors for any lost or stolen crypto.
The next move for ASIC is to work in tandem with the Australian Securities Exchange (ASX) to assess whether there is sufficient interest in launching a spot-backed Bitcoin ETF in Australia. Moreover, ASIC must perform a thorough investigation on the cryptocurrency sector to determine whether there are reputable companies that can list a crypto ETF, the crypto market is sufficiently regulated, and there are transparent pricing mechanisms. Right now, ASIC is only considering Bitcoin and Ethereum as candidates for spot-backed ETFs.
On top of this news, the Commonwealth Bank of Australia has announced that it will be the first Australian bank to allow customers to trade cryptocurrencies. It is apparent that regulators and key financial institutions are recognising the power of cryptocurrency and are acting to get ahead of the curve.