ASIC gives trading of Bitcoin, Ethereum ETFs green light

Australia’s corporate regulator has given the green light to a range of cryptocurrency-related ETFs, which could see Bitcoin and Ethereum-backed investment funds trading on the ASX in the coming months.

On Friday, the Australian Securities and Investments Commission (ASIC) released a set of guidelines and requirements relating to crypto exchange-traded products, or ETPs, after a series of consultations the regulator has been undertaking since June.

Bitcoin ETFs might not be far off after ASIC gave them the green light on Friday.Credit: AP

The new guidelines will allow funds to launch exchange-traded funds (ETFs) that invest directly in cryptocurrencies or in crypto-adjacent assets, such as crypto miners and coin exchanges. A number of local funds have recently expressed an interest in launching such offerings in Australia.

ETFs allow investors to purchase various securities, commodities or indices without having a direct exposure to the asset. Investors have been calling for an ETF that tracks the price of major cryptocurrencies as a way for traditional investors to gain exposure to the sector. Last week, the first Bitcoin futures ETF was launched in the US following approval from America’s corporate regulator.

ASIC has been mulling its approval of similar funds for some time, with today’s announcement coming less than two weeks after a major new package of crypto reforms was tabled in parliament by Liberal Senator Andrew Bragg.

Investment firms interested in establishing a Bitcoin ETF will be required to adhere to a set of best practice guidelines - most notably strict rules around asset custody, with ASIC noting that the protection and storage of cryptocurrency private keys - the ‘master password’ which allows access to the assets on the blockchain - was of “critical importance”.

These best practices include storing private keys in ‘cold’ storage - not connected to the internet - and that the wallets in which the keys are stored are subject to “robust physical security practices”. Numerous backups will need to be made and stored in geographically separate locations.

Custodians for crypto assets will also be required to have heightened cybersecurity protocols, and ASIC said it expects funds that offer crypto ETFs to account for some form of compensation for investors if their crypto-assets are lost or stolen.

Funds will also need to apply for an expanded financial services license that specifically permits the custody of crypto assets.

“Crypto assets have unique characteristics and risks that must be considered by product issuers and market operators in meeting their existing regulatory obligations,” ASIC Commissioner Cathie Armour said.

“The good practices we published provide practical examples of how these obligations may be met, in a way that maintains investor protections and Australia’s fair, orderly and transparent markets.”

ASIC’s guidelines will also place a significant onus on market operators such as the ASX, who will be required to assess which cryptocurrencies are acceptable for an ETF. This assessment includes if there is a high level of institutional support for the asset and if there’s a number of reputable service providers for the asset, a mature spot market, a regulated futures market and transparent pricing mechanisms.

Currently, only the two largest cryptocurrencies, Bitcoin and Ethereum, fit these criteria, though ASIC says it expects the number of cryptos that can satisfy these requirements to expand over time.

A spokesperson for the ASX told The Age and The Sydney Morning Herald the exchange operator welcomed the regulatory guidance, saying it was a “positive development”.

“We have been working with a range of issuers interested in launching ETPs that invest in crypto-assets and are very aware of the high level of interest amongst investors for products that provide access to these assets,” they said.

The bourse said it would now assess modifications it would have to make to its rules supporting ETP trading, “as well as those that might be required to other systems, processes and compliance functions that ensure ASX maintains a fair, orderly and transparent market”.

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