Imagine for a moment if gold investing was off limits: Investment funds could invest in gold mining services, or in railways hauling gold, or even in gold futures but the yellow metal itself was off limits: This is where we are just now on cryptocurrency and it is getting more ludicrous by the day.
At its worst regulators are restricting cryptocurrency activity to those at the extremes – the richest represented by family offices in specialist funds and the least protected end of the market that ventures into the exotic carnival of crypto exchanges.
But when there is money to be made and customers are knocking on the doors, the market will find a way to let them in.
That’s why in the space of a few days one of our biggest exchange-traded fund operators BetaShares has announced the launch of a “cryptotech” ETF, while in the US the ProFunds group is about to launch an ETF based on Bitcoin futures.
Regulators are rightly sceptical about the entire area; In the US, Gary Gensler, chairman of the Securities and Exchange Commission is on the record saying: “This asset class is rife with fraud, scams and abuse.” In the UK a survey released this week found that 75 per cent of the population believe crypto will never become legal tender and 66 per cent thought it was an “unsafe investment”. (Oh yes, and 3.5 per cent thought Cardano was a cheese!),
Yet it’s fanciful to allow investment funds to invest in crypto technology and not crypto, or the US version where the regulator is to allow big funds to track Bitcoin futures but not direct investment in Bitcoin, the underlying currency.
Investors want to speculate on crypto – most of them want to do it through investment funds or even super funds – and they will use any corridor of entry to play the game.
Of course the risks involved in such speculation is substantial, but we have reached a point where the risks cannot be separately contained.
The worst case scenario for those with money in anything crypto-related would be if the bubble burst and crypto currency prices plunged, this time never to recover: This could happen if the global central banks successfully marginalised cryptocurrency activity.
Two key developments will dictate what happens next in our market: First the Australian Securities and Investments Commission has been reviewing the sector and is due to report by the end of the year. Separately, the Senate Select Committee on Financial and Regulatory Technology is expected to report on its examination of existing regulation by October 30.
Until both of those reports drop, the contradictions multiply: You are not protected in any traditional fashion putting money into crypto but you can certainly be taxed in the traditional fashion if you make a capital gain.
Big super funds are not going near the area, while self-managed super funds are making calculated bets.
The regulators have a lot of work to do, but the current situation is a mess where some are allowed to speculate and some are not while others are shunted towards buying proxies for the real thing.
More Coverage
Join the conversation
Super fund fees: how much is too much?
Would you throw away $200,000-plus? Many Aussies are potentially doing that by ignoring superannuation fund charges.
Read more
When navigating shares, ignore the white noise
Although financial commentary is rife with near-term events and distant prognostication, almost none of this directly helps navigate sharemarkets. So what should we be looking for?
Read more