Aussie crypto ETFs are shutting their doors – but here’s why the biggest players are keeping the faith
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If “winter is coming” is the motto of House Stark in Game of Thrones, then “winter is here” is the one for crypto investors in 2022.
The catastrophic collapse of Sam Bankman-Fried’s FTX empire and its potential contagion effects is yet to fully play out but it’s now already the worst “black swan” crypto event of the year.
Which is saying something – there are some real doozies competing for runner-up in that category: including the Terra Luna implosion, the demise of hedge fund Three Arrows Capital and crypto lending platforms Celsius and Voyager.
What was a US$2.3 trillion industry at the beginning of the year, has been pummelled down to roughly US$850 billion.
Set amid one of the gloomiest macroeconomic environments in recent memory, for crypto it’s the year that keeps on taking, and unfortunately, it’s not quite over yet.
Investors will be pinning hopes on a phoenix-like rise in 2023. Stranger things have happened – mostly this year.
So just what then is the impact of all this on Aussie-listed ETFs with exposure to the crypto market? Crypto ETFs made a high-profile entry into Australia and came after a multi-year regulatory approval process.
However, the launches have coincided with widespread decline in crypto markets amid economic turmoil and a tech sector sell-off. The lack of enthusiasm from investors has resulted in a market downturn referred to as a crypto winter.
Cosmos Asset Management said it would delist its two pure cryptocurrency ETFs. The management team behind Cosmos Purpose Bitcoin Access ETF (CBOE:CBTC) and Cosmos Purpose Ethereum Access ETF (CBOE:CPET) have applied to revoke their quotations on CBOE Australia (formerly Chi-X).
It has removed the Cosmos Global Digital Miners Access ETF (CBOE:DIGA), which invests in companies associated with crypto mining.
According to CBOE, at the end of September Cosmos had a total of $1.8 million in assets under management (AUM) in its three funds.
By November AUM had fallen to $1.4 million, according to latest updates on the Cosmos website.
Meanwhile after launching in June the 3iQ CoinShares Ether Feeder ETF (CBOE:ET3Q) and the 3iQ CoinShares Bitcoin Feeder ETF (CBOE:BT3Q) are also set to be removed from quotation on CBOE Australia.
According to its launch statement at the time “the Bitcoin ETF and the Ether ETF aim to provide investors with exposure to bitcoin and ether, respectively, and the daily price movements of the US dollar price of underlying crypto asset and the opportunity for potential long-term capital growth”.
Founded in 2012 in Canada, 3iQ prides itself on being one of the oldest and largest digital asset managers globally.
3iQ had a cumulative AUM under its two ETFs just over $330k at end of October, according to CBOE data.
The responsible entity of the funds is Perpetual’s The Trust Company.
Furthermore, Holon Investments also announced it will likely close its three unlisted retail funds which it launched in July and are invested in Bitcoin, Ethereum and Filecoin.
According to a report in the AFR it follows a stop order from the Australian Securities and Investment Commission, which said Holon failed to describe the risks to investors in its target-market determination filings.
ASIC has listed crypto as a top enforcement priority for the year ahead.
Global X was the first, alongside Cosmos, to launch physical Bitcoin and Ethereum ETFs. The Global X 21 Shares Bitcoin ETF (CBOE:EBTC) and Global X 21 Shares Ethereum ETF (CBOE:EETH) were launched on May 9, the same day as Cosmos, as the race to be the first to launch came down to the wire.
Last year it also launched a thematic ETF focused on decentralised finance called the Global X Fintech and Blockchain ETF (CBOE:FTEC). Investing in companies including Block (ASX:SQ2, NYSE:SQ), Mastercard (NYSE:MA) Visa (NYSE:V) and Coinbase (NASDAQ:COIN). All three Global X funds have fallen this year.
Global X head of distribution Kanish Chugh told Stockhead the company has no intention of closing down its crypto ETFs and is even considering an expansion.
“We were one of the first in the markets in Australia and will continue to support this asset class,” he said.
“In the future we will look to expand our digital assets range.”
BetaShares Head of digital assets Justin Arzadon told Stockhead the company will also continue to trade the BetaShares Crypto Innovators ETF (ASX:CRYP), which broke an ETF record when it listed on the ASX on November 4, 2021, attracting more than $8 million within 45 minutes.
It has continued to attract strong interest from investors, despite its share price falling more than 80% over the past year.
“CRYP is unique in the Australian market, as it contains a portfolio of listed companies that represent the picks and shovels of the crypto ecosystem and does not invest in cryptocurrencies directly,” he said.
“The consistent interest in our Crypto Innovators ETF shows that investors are rightly taking a long-term view when constructing their portfolio.
“In any case, the last few months should serve as a reminder that digital assets are best placed as a small component of a diversified investment portfolio given their inherent volatility.”
Neither BetaShares or Global X have exposure to FTX in their holdings, as it was an unlisted company.
“The ETFs track an index and the index managers have processes in place to deal with companies like FTX which go into liquidation,” Chugh said.
“So even if an ETF was exposed to a company which went into liquidation it’s one of many holdings, offering greater protection for shareholders.”
Chugh also had reassurance for investors in their crypto ETFs concerned about the potential contagion of FTX.
“What we are trying to provide is a robust, transparent and efficient vehicle to invest in Bitcoin and Ethereum in an opaque non-transparent wild west industry,” he said.
“The crypto sector will have FTX like moments, but the hope is to provide a cleaner, stronger, more transparent industry in the future.”
Chugh forecasts in the long-run greater regulation in the sector with regulated participants leading the way in what is still a very young asset class.
“The first cryptocurrency Bitcoin was only launched in 2008,” he said.
“People still discuss the investment rationale of gold which is 2,000 years old so we need to put this all into perspective. “