Crypto ETFs, some of Australia’s first, to list on Cboe Exchange

The prospectus warns of bitcoin price fluctuations and the possibility of regulatory changes.

ETF Securities will list one of the country’s first funds, allowing shareholders to invest directly into bitcoin and ethereum. Picture: Chandan Khanna/AFP

ETF Securities says it will list one of the country’s first cryptocurrency funds, allowing shareholders to invest directly into bitcoin and ethereum without the need to set up their own digital wallets.

The two funds – the 21Shares Bitcoin ETF and the 21Shares Ethereum ETF – are set to list on the Cboe Exchange, previously known as Chi-X, next week.

21Shares, a Switzerland-based issuer of exchange traded products, already operates a range of funds that allow investors to place money in cryptocurrency related sectors.

ETF Securities chairman Graham Tuckwell said he expected the funds to grow into the “hundreds of millions of dollars reasonably quickly”.

But there was some hesitation “because of what’s happened in terms of the uncertainty as to when ASX Clear would finally put some rules out that the clearers and market makers and brokers could actually live with and get them through their internal policies,” Mr Tuckwell added.

“Although we are launching next Wednesday, its almost with one hand tied behind participants’ backs and there will be a number of people who will either not be ready or are not happy about some of the requirements, so it won’t be the full blown show you’d expect if it was a stock standard product,” he said.

“The pipes for the whole system will be open, but they won’t be open to the full extent we’d like to see them, and there be a number of people who phone up their brokers and say ‘I’d like to buy this’ (and instead be told) ‘oh, whoops you can’t’.”

Mr Tuckwell has previously expressed his unhappiness at the slow pace of approvals from ASX Clear – the monopoly clearing service which is owned by Cboe’s competitor ASX Limited – and on Wednesday said that he stood by those comments. “It’s a monopoly dragging its feet,” he said. “For their own reasons it’s taken longer than it should have, and I think they’ve imposed collateral requirements that are more onerous than they need to be.”

Another cryptocurrency ETF, run by Cosmos Asset Management, is also poised for a public float next week – also on Cboe – with the bitcoin-focused fund also given clearance from ASX Clear. The ETF Securities funds have been given the go ahead.

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“Australian investors clearly want and deserve an affordable, easy, and professional way to access the growing crypto asset class and we’re delighted to continue building accessible bridges into the crypto world,” said 21Shares chief executive Hany Rashwan on Wednesday.

The prospectus for the funds, issued by ETF Securities, warns of the fluctuation in the bitcoin price. “Adverse movements in the price of Bitcoin may negatively affect the return to holders, and may result in holders losing all, or a significant portion, of their investment,” it reads.

The prospectus also warned there is the possibility of changes to regulations that may affect the performance of bitcoins and cryptocurrencies. “Bitcoin is a relatively new asset and as such its regulatory status and legal standing in different jurisdictions is not consistent or certain and any change in either of these could have a material impact on the value,” it reads.

All bitcoin held by the ETF Securities fund will be held in a secured account owned by Coinbase, which has over $US270bn ($365bn) in assets under custody. They will be held on both “cold storage” accounts – one that is taken offline to reduce the possibility of hacking – and “multi signature wallet” accounts, according to the filing.

ETF Securities will charge an annual fee equal to 1.25 per cent of the assets in the fund.

“Once we decided to build a range of crypto ETFs for the Australian market, there was only one partner we wanted to work with, and that’s 21Shares,” said Mr Tuckwell. “Its pioneering approach to secure investment in cryptocurrency has been emulated by other fund managers around the world.”

Some concerns, however, have been raised in the last week about the rules cryptocurrency ETFs have developed for themselves. Hector McNeil, the co-chief executive of sector specialist HANetf, said 21Shares prospectuses allowed the lending of the underlying cryptocurrencies but were silent on who would be given the revenues generated.

“By omission it suggests that the lending revenue is not passed to the ETP holders,” Mr McNeil wrote in a LinkedIn post. “The actual collateral held should also be published mark to market daily on the issuers website. Then investors can clearly see what the full risks they hold at the product and counterparty level.”

But a 21Shares spokeswoman said the company was no lending any of the underlying assets in its physically-backed cryptocurrency ETF products.

“We have updated our prospectus last year to allow lending because we anticipate building products in the future that will incorporate lending,” she said.

“We ran several experiments in 2021 to make sure the operations & infrastructure is set up to allow for a scalable lending-based product … We may launch products with lending in the future but if that happens, all relevant details will be public.”

Originally published as Crypto ETFs, some of Australia’s first, to list on Cboe Exchange