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Crypto ETFs in Australia

Cryptocurrency is a historically volatile investment product that some investors avoid due to its fluctuating prices and ‘unsafe’ reputation. Crypto ETFs, however, have been growing in popularity recently as they minimise the associated risk with cryptocurrency by diversifying across a larger number of types and categories. Let’s dive into what these types of ETFs look like in the Australian market.

What are crypto ETFs?

Crypto ETFs are investment vehicles designed to track the performance of a particular cryptocurrency or a mix of cryptocurrencies, allowing investors to get involved in this dynamic market easily. Much like conventional ETFs, crypto ETFs enable traders to acquire indirect exposure to digital coins without handling custodial responsibilities or navigating complex storage procedures.

How do they differ from other ETFs?

Unlike traditional ETFs that generally deal with stocks, bonds, commodities, or property, crypto ETFs concentrate specifically on virtual currencies. Moreover, owing to the legal hurdles of the heavily regulated crypto market, crypto ETFs may encounter greater scrutiny, posing potential complications. Consequently, crypto ETFs tend to involve slightly higher costs and transaction fees due to the distinctive character of the underlying assets.

How are they created?

1. Fund Managers purchase crypto futures contracts (agreements to buy/sell crypto at a predetermined price and date)

2. These contracts are bundled together into a fund which represents the underlying assets the ETF will track

3. The Fund Managers then offer shares of the fund to investors to be bought or sold on various exchanges (In Australia, both the ASX and Cboe Exchanges allow the trading of crypto ETFs)

Examples of Popular Crypto ETFs in Australia

1. BetaShares Crypto Innovators ETF (CRYP)

2. Global X 21Shares Bitcoin ETF (EBTC)

3. Global Ex 21Shares Ethereum ETF (EETH)

4. ARK 21Shares Bitcoin ETF (ARKB)

5. Bitwise Bitcoin ETF (BITB)

Current Trends Surrounding Crypto ETFs

Bitcoin ETF Approval: The recent approval by the US Securities and Exchange Commission (SEC) of the first-ever spot Bitcoin ETF is a significant milestone for the cryptocurrency market. This decision allows investors to engage with Bitcoin through a familiar, accessible, and regulated vehicle, marking a turning point in Bitcoin's trajectory as a legitimate investment. Spot Bitcoin ETFs correlate directly with Bitcoin’s market price, offering a potentially less-risky avenue for exposure compared to futures-based funds. The approval of these ETFs is expected to drive increased demand for Bitcoin, potentially impacting its price positively.

Increasing Popularity: Institutional investors' growing interest in cryptocurrencies is driving demand for regulated vehicles like ETFs, allowing institutions to gain exposure without directly holding digital assets. This trend will likely continue as more institutional players enter the crypto market.

Multi-asset crypto ETFs:A new type of crypto ETF is gaining popularity as it offers investors diversified exposure across various digital currencies through a single fund. With over 20,000 different cryptocurrencies available today, multi-crypto ETFs can provide a convenient solution for those looking to invest in multiple projects simultaneously while mitigating risk.

In addition to traditional stocks, bonds, and commodities, retail investors are seeking alternative asset classes to enhance portfolio returns. Given the rapid increase in adoption and valuation of cryptocurrencies, retail participation in crypto ETFs will likely expand as awareness grows.

References:

https://www.etf.com/etf-education-center/etf-basics/cryptocurrency-etfs-asx

https://www.finder.com.au/best-etfs

https://www.forbes.com/advisor/au/investing/cryptocurrency/us-bitcoin-etfs-australian-investors/#:~:text=While%20the%20SEC%20has%20approved,the%20first%20half%20of%202024

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Lesson List

Index ETFs: A Friendly Way to Start Your Investment

Sector ETFs

Investing with Sector ETFs

What are Factor ETFs?

How to implement factor ETFs as part of your portfolios

Intro to Bitcoin ETFs

Bitcoin ETFs in the Market

Investing in ETFs: Liquidity is Key

Leveraged ETFs

Trading Long ETFs

Trading Short ETFs

Short and Long Index ETFs

How does Leverage Impact Risk and Investment Returns?

Risks Related to Compounded Returns and Market Exposure

Considering Inverse ETFs in a Bear Market

Crypto ETFs in Australia

Common Questions About Australian ETFs

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