Crypto’s time has finally arrived: going mainstream or staying with geeks?

Bitcoin-focused funds are pulling mainstream investors into an area previously reserved for speculators, and it’s the final frontier for cryptocurrency.

New ETFs open digital currencies to a wider market. Above, Bitcoin. Picture: iStock

We have come to the crunch with cryptocurrency: This is the point at which Bitcoin becomes “legit” or it returns to the realms of geeks day-trading in their bedrooms.

A torrent of interlinked crypto activity is hitting the investment market all at once, but what matters above all is the combination of crypto and conventional investment funds.

The outstanding development is where we have a mixing of the most extraordinary development in finance this century with the most successful financial products in a generation: exchange traded funds.

In the local market the BetaShares group has announced it is launching a Cryptotech ETF. In the US the first ever crypto-based ETF – $BITO – was launched mid week.

If you want to see what happens when money managers find a way to offer mum and dad crypto exposure through funds in a regulated environment, note what just happened to the US-based ETF.

The amount of money that rushed into the fund beat a record that had stood for 18 years – it raised $US1bn in two days. The previous record was $US1bn in three days for a pioneering gold ETF.

These new are funds created to capture the demand of the investing public for crypto speculation – in both cases they are not allowed to offer crypto itself so they offer products that can be used as proxies for the real thing.

Bizarrely, the US regulators signed off on a fund that actually invests in Bitcoin futures rather than Bitcoin per se, while the Australian fund will invest in what is dubbed as crypto technology. Cryptotech in this case will be defined by what’s in the Bitwise Crypto Industry Innovators Index, a creation in turn of New York crypto asset manager Bitwise.

Behind this first wave of crypto funds there is a queue of rival fund managers waiting to get the go ahead from the regulators.

It is nonsense to allow these crypto-related funds to take in money and not allow them to invest directly in Bitcoin or other crypto currencies.

Such ETFs should be banned outright or they should be allowed to offer crypto in any form they like – the second option is the healthier choice and though our regulators are mulling the issue there is no legal obstacles to signing off crypto funds.

Until now it’s been opposite ends of the market dabbling in crypto. On one end of the spectrum it’s been investment leaders such Alex Waislitz or Mark Carnegie. At the other end it has been 21-year-olds who have never invested in anything else.

This is partially because the channels into crypto have been so narrow. It has been largely restricted to sophisticated investor wholesale funds or the crypto exchanges.

But the everyday investor wants the comfort of licensing, auditing and the other bells and whistles which at least frame such activity inside the system.

Indeed, another reason crypto is on the doorstep of respectability is such a regulatory framework could soon be on the way if Senator Andrew Bragg gets his key recommendations for the area taken up by the government.

Crucially, the creation of a conventional investment funds for crypto means that financial advisers can now effectively recommend crypto products.

Until now they could say it was not a financial product and consequently they were restricted from giving advice (a useful limitation in many cases since the adviser might have had no idea whatever about the area).

As an investor you have to make your own mind up – the one thing we can say for sure is that it is too late to say the whole game is illusory – the dogs bark but the caravan keeps moving on.

Of course, the bellwether for the whole scene, the price of Bitcoin, could burst again, but even if it does there will be residual intrinsic value in the accumulated (intellectual property) IP around blockchain technology.

For the record Bitcoin is testing records again – it reached a record high this week of $US66,974, after dropping as low as $US29,608 back in July.

For now it is entirely reasonable for any investor to ask whether the scene is still dotted with rogues and charlatans.

The short answer is yes. Gary Gensler, chair of the US Securities and Exchange Commission, only a few months ago suggested “this asset class is rife with fraud, scams and abuse” – though note he did say asset class.

Apart from the rich listers and day traders, crypto is also steadily attracting mainstream individual investors, particularly through self-managed super funds. In contrast, larger industry and retail super funds have yet to make a move, though funds such as QIC are monitoring the market.

The evidence to date is that older investors actually enter the fray as determined holders not traders – a long-form version of speculation.

Meanwhile, a report from the Finder group suggests that 17 per cent of Australians own cryptocurrency. This is hard to believe without a lot more evidence. The report says the main reason for putting money into cryptocurrency is “because it is going up” – that is much easier to believe.