Why you could soon see a new raft of crypto ETFs
A significant numbers of Aussies are holding cryptocurrency as an investment. And given the meteoric price rises we've witnessed with various crypto assets over the years, it's easy to see why many have been attracted to the potential returns.
Take the value of Bitcoin as one example. In early June 2016, one Bitcoin was trading for around $820. At roughly the same time in 2020, that had gone up to $13,800. Fast-forward to 2024 and the price is hovering over $100,000.
Of course, there have been plenty of dips along the way.
As Hebe Chen, a market analyst for the brokerage IG Australia, explains, the potentially significant ups and downs are a factor that investors will need to take into account.
"Cryptocurrency markets are well-known for their high volatility, which can be sweet candy for some investors but poison for others. Understanding and strictly assessing your risk tolerance is the first and most crucial step before diving into the world of crypto," she says.
While many earlier investors had to purchase cryptocurrency through a brokerage platform, the various options for prospective investors only seem to be growing and growing.
"Australian investors have a number of avenues to get involved with the crypto world and related technology, including direct ownership, which involves buying and holding various digital currencies on reputable cryptocurrency exchange platforms," says Chen.
"Then there's investing in listed companies on the ASX or any global indices that are involved in blockchain or technology crypto-related businesses.
"And some managed funds and ETFs offer exposure to cryptocurrency or blockchain technology as a key component of their portfolio."
And a recent decision in the US is likely to pave the way for even more crypto-related ETF options for Australian investors.
In January, the US Securities and Exchange Commission approved the listing and trading of 11 spot Bitcoin exchange traded products from the likes of Blackrock and Fidelity. Then, in May, the SEC also paved the way for the approval of similar Ethereum products.
Despite these approvals, SEC chair Gary Gensler warned investors to "remain cautious about the myriad risks associated with Bitcoin and products whose value is tied to crypto".
In essence, a spot Bitcoin ETF or ETP is designed to reflect the price of Bitcoin.
The fund will generally hold actual Bitcoins as the underlying security and issue shares in the fund to investors like a regular ETF, making it a relatively accessible way for investors to get exposure to Bitcoin.
Since their inception earlier in the year, the funds have collectively attracted billions of dollars from investors.
"The approval of spot Bitcoin ETFs early this year, coupled with their demonstrated popularity, marks the dawn of cryptocurrency's maturity
as a mainstream investment tool," says Chen.
"It's also foreseeable that the debut of spot Ethereum ETFs in the near future will only reinforce this shift and propel major cryptocurrencies into an ever-growing number of investment portfolios. Either the evolving maturity or the surging demand will likely lead to the birth of Australian-listed ETFs."
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