It’s fairly easy these days to buy bitcoin. Bitcoin-only companies such as Bitaroo, FastBitcoins and HardBlock will graciously accept your inflation-decimated dollars in exchange for the hardest money ever known. Alternatively, you can go off-grid and acquire sats (fractions of a bitcoin) without using the exchanges. For example, your bitcoin-carnivore mate that needs cash for a new deep freezer may be willing to make a trade. There are other peer-to-peer purchasing options and competing exchanges, so why would Aussies be interested in buying bitcoin through an ETF? What is an ETF anyhow? And what is the deal with the new, Aussie bitcoin ETFs CBTC and EBTC?
ETF stands for Exchange Traded Fund. A fund is just a mechanism for investors to buy an asset (companies, commodities, etc.) jointly for which they are issued shares. If these shares trade on an exchange, well, you have an Exchange Traded Fund. These are big business and it is estimated that about $3T of capital are allocated to ETFs globally.
We’ve touched on what an ETF is but would Aussies actually like to buy bitcoin through one of these instead of buying bitcoin outright? Well, you could be early in your journey to bitcoin self-sovereignty and not ready to hold your own keys yet. Possibly, you already have experience trading ETFs of index funds or commodities such as gold or oil. In this way, getting exposure to bitcoin through an ETF feels familiar. Institutions may be attracted to a bitcoin ETF because it allows them to get exposure to bitcoin without having to devise new protocols for private key management. An additional consideration is the ability to trade ETFs on margin, as is readily achieved with many ETFs today and at loan-to-value ratios of up to 80% or more. As well, some superannuation funds allow customers to trade individual stocks within their portfolios. If bitcoin ETFs become accessible in this way, it would make it possible for Australians to allocate some of their retirement savings to bitcoin without the administrative overhead of establishing an SMSF.
A few reasons why Aussies might use bitcoin ETFs:
- bitcoin exposure without key management
- familiar to customers that stock exchanges
- new management structures are not required
- well-established mechanisms for leverage
- access emerging asset class without an SMSF
Last month, the first two bitcoin ETFs launched in Australia. These are 21Shares Bitcoin ETF (EBTC) and Cosmos Access Bitcoin Purpose ETF (CBTC). They are both ostensibly “spot” ETFs which means that the issue of shares is linked to the acquisition of actual bitcoin. This is in contrast to a “futures” ETFs for which the price exposure to the underlying asset is achieved through the purchase of derivatives. EBTC provides holders with an interest in bitcoin held by a custodian (Coinbase). Units of EBTC can actually be redeemed for bitcoin. Managers of CBTC don’t buy bitcoin directly; Instead, they buy units of Purpose Bitcoin ETF (BTCC-B, listed on the Toronto Stock Exchange). Purpose Bitcoin ETF entrusts their bitcoin to Gemini. These layers are represented graphically below:
Both EBTC and CBTC are listed on Cboe Australia, which is an alternative to the more well-known Australian Stock Exchange (ASX). Despite efforts from Cboe to entice superannuation providers to offer trading there to customers, this has not been achieved yet and may be due to a lack of perceived demand until now. It is expected that the ASX will host a bitcoin ETF from at least one other provider this year, with Monochrome’s CEO indicating on Twitter that a launch is imminent:
