In the final three months of 2023, the price of bitcoin soared by more than 150% and it has continued to rise into the new year — largely driven by the anticipation of US exchange traded fund (ETF) approvals.
Now, with the the pivotal decision by US regulators to approve cryptocurrency ETFs listing on the NYSE, Nasdaq and Cboe Global Markets exchanges — and the first Bitcoin ETFs traded on US exchanges last night — the price of the cryptocurrency soared to new two-year highs of US$49,000.
The new US Bitcoin ETFs, offered by prominent firms BlackRock, Grayscale, VanEck and Fidelity along with six others, are designed to mirror movements in the spot price of Bitcoin and to make access easier for retail investors through traditional stock markets.
Australian investors have long waited for an easy way to gain exposure to the 15-year old cryptocurrency — without needing to manage cryptographic keys, bitcoin wallets or to take the risk of buying on unregulated crypto exchanges.
Large Australian retail brokers now face the decision of whether to offer US-listed bitcoin ETFs to Australian investors. Some, including CommSec, along with smaller broking houses Stake and SuperHero, expect to soon make the US-listed Bitcoin ETFs available to local investors on their platforms.
Bitcoin Christmas
“It feels like Bitcoin Christmas,” said Robert Waugh, CEO of UB.com at CloudTech Group and previous Head of Wealth and Retirement Product at NAB.
Speaking to Proactive the former banker, who recently came to crypto, described the listing of Bitcoin ETFs as an amazing shift in traditional finance.
Not only is it the first opportunity for everyday investors to access Bitcoin through their traditional way of investing, but the behind the scenes activity really lends credibility to cryptocurrencies.
“All of these ETF providers, like BlackRock and Fidelity, have the support of banks and other financial services companies. That means they have their custody sorted, they've got their transaction banking sorted, they've been through their investment committees, their governance processes and all of these processes that I've been through in my bank,” said Waugh.
“They've all signed off and said we are comfortable to be associated with this asset class, to the point that even JP Morgan is nominated as an authorised person to hold the Bitcoin on the Blackrock (NYSE:BLK) Bitcoin ETF.
“These incredibly well established traditional finance firms are offering easy access to the whole asset class.
“This is a huge transition of traditional finance from where it was five years ago and that's the thing that I'm most surprised about.
“I think we'll look back on this moment and realise its significance in bringing crypto and blockchain into the public consciousness but also, getting grown ups in the space.
“This is, personally, why I moved into the space. I see its tremendous potential and I feel as if I can add some value with my institutional experience and actually build things properly with institutional grade quality and delivering for clients.”
A game-changer for crypto
Mainstream accessibility to Bitcoin is also expected to support spot prices. On this point, Waugh drew an analogy to the introduction of gold ETFs in 2004.
Before gold ETFs were introduced, the precious metal, then priced below US$400 per ounce, was not accessible for just anybody on the street. But since the introduction of ETFs, gold is an in-demand liquid financial asset — anyone with a stock trading account can buy one of the gold ETFs.
Today, the price of gold, currently around $2,000 per ounce, is largely set by financial demand, as over $100 billion worth of gold is held by ETFs in the US alone.
Comparing this to Bitcoin, there’s already US$100 billion of demand in the first short while for Bitcoin ETFs, according to Standard Chartered (LON:STAN) Bank. As such, Standard Chartered anticipates a doubling of the Bitcoin price to US$100,000 this year. And it likely has much further still to rise.
Waugh explains: “The thing with gold is, when money moves into the gold market and people buy gold, it makes it more profitable for gold miners to extract more gold from mines. Therefore, as demand goes up, supply also goes up because new mines are opened.
“With Bitcoin that does not happen. It doesn't matter how many people start building mining operations, doing the computation and Bitcoin mining, the supply is fixed. So this is a very different asset class than gold, because there's no elasticity in it. The supply is the supply. And if the demand increases, that causes very, very strange behaviour on the price.”
Bitcoin on the ASX
In addition to the opportunity for Australian investors to access US-listed Bitcoin ETFs via local platforms, Bitcoin ETFs are likely to soon be trading on the ASX.
The ASX has traditionally had a guarded stance on bitcoin-backed securities for retail investors, but following the lead of the US, it is expected to approve the domestic listing of cryptocurrency-linked ETFs in the coming months.
Brisbane's Monochrome Asset Management leads the queue for ASX approval, and having filed its application with the ASX back in July 2023 is aiming to launch a Bitcoin ETF product in the first half of 2024.
Betashares (ASX:BBUS), another player in the field, is also preparing to launch an ETF on the ASX, contingent on the successful listing of its US product. The ASX has previously approved a Betashares ETF that invests in companies servicing the cryptocurrency market, rather than in bitcoin itself. This fund currently manages about A$120 million.
A cautious approach
The ASX's cautious approach to cryptocurrency products stems from ASIC guidelines, mandating crypto-asset category licences for responsible entities. However in August 2022, the ASX updated its “exchange traded product” regulations — the AQUA Rules — establishing minimum requirements for crypto ETF custody and liquidity.
While now open to the introduction of these funds, the ASX insists on substantial special margins from brokers — currently set at 40%. This means they have to put up 40¢ in the dollar of daily fluctuations in the price to cover settlements.
Even in the US regulators remain cautious. While the Security and Exchange Commission's (SEC) nod towards cryptocurrency ETFs can be considered mainstream acceptance of the asset class, SEC chairman Gary Gensler cautioned that the regulator’s approval does not reflect its broader acceptance of cryptocurrencies.
“While we approved the listing and trading of certain spot bitcoin [ETF] shares today, we did not approve or endorse bitcoin,” Gensler said.