Regulation

On Oct. 19, 2021, the ProShares Bitcoin Strategy ETF (BITO) launched on the New York Stock Exchange. On its first day, the exchange-traded fund (ETF) saw an influx of close to $1 billion in natural volume and, within 24 hours, Bitcoin (BTC) itself would reach a new all-time high for its price in U.S. dollars. This comes a week after the U.S. Securities and Exchange Commission allowed the ETF’s application to expire, which effectively gave the okay for the product to move ahead. 

This marks a significant step for the United States, but has also sent ripples into other markets globally. If BITO continues to be as well received as its first day would imply, then it is likely more and more will want to follow suit. The ETF offers exposure to derivatives from Bitcoin futures contracts, not Bitcoin itself. While purists may find this undesirable, it provides a notable degree of insulation for investors from Bitcoin’s inherent volatility. Other products in other markets with similar philosophies could help assuage the concerns that have kept institutional players at bay for years.

A success story out of a market like the U.S. certainly sheds a positive light on the prospect of similar funds across the globe, and bringing exposure to Australian institutions stands to be a boon for both Bitcoin as well as the nation’s economy. More importantly, this has provided an opportunity for Australia to take the lead on financial innovation and bring cryptocurrency wholly into its financial flock.

And, for the most part, Australia’s legislators agree. A recent report published by the Parliament of Australia’s Select Committee on Australia as a Technology and Financial Centre proposed the framework that puts Australia on a level playing field with the U.S., the United Kingdom and Singapore.

The ETF domino effect

With that framework in place and following the success of BITO, Australian fund management company BetaShares has launched its Crypto Innovators ETF on the Australian Stock Exchange (ASX) under the ticker CRYP. Exposure to the fund allows investors to track various crypto-focused companies, based on the Bitwise Crypto Industry Innovators 30 Index. The index’s core portfolio consists of major crypto entities such as prominent cryptocurrency exchange platform Coinbase, Bitcoin mining company Riot Blockchain, and Michael Saylor-led business intelligence software firm MicroStrategy.

The fund broke ASX records within 15 minutes of launch, and racked up almost $31.3 million by the end of the opening day.

Essentially, by holding company shares rather than particular crypto assets like Bitcoin and Ether (ETH), BetaShares’s ETF can provide interested clients with a unique opportunity to participate in the booming digital asset market without having to physically purchase any crypto directly. In fact, BetaShares claims that 85% of its index looks at firms that derive a bare minimum of either 75% of their revenue from the crypto market directly, or alternatively possess at least 75% of their assets in direct crypto holdings. This stands to maximize long-term returns as Bitcoin matures but also minimizes the shock of a market reversal, which many believe is virtually inevitable.

This has the potential to be transformative for both Australia as well as broader crypto adoption. The launch of this ETF provides Australian investors and institutions with their first access to Bitcoin, and in a fashion that should calm their concerns surrounding volatility. This, in turn, will bring greater interest into the Bitcoin economy and should help bolster the asset’s price. More importantly, it will be another example of this type of product in action which, with any luck, could inspire other markets worldwide. That being said, Australia doesn’t need to wait for more global adoption when, instead, they should be leading.

In a similar move, and right in Australia’s geographic backyard, New Zealand also saw the launch of its first Bitcoin ETF earlier this month in the form of a new offering called Vault International Bitcoin Fund, or VIBF. VIBF is composed of carefully selected offshore listed Bitcoin Funds and other ETFs. It is the first of its kind to make its way down under, which could further encourage regulators who are in the process of reviewing the first such ETF in the Australian market.

Related: Australian Senators pushing for country to become the next crypto hub

What lies ahead?

The first crypto-exposed ETF is a great development, but it needs to be the first drop in a big bucket. Frankly, there’s almost no end to the possibilities for crypto funds and derivatives, given the sheer diversity available. Even without getting into risky, small-cap projects, there’s literally hundreds of reputable assets already in the market. Just looking at the top coins like Ether and Solana could be the basis for a variety of fund portfolios, but it’s when you get into the blue-chip decentralized finance offerings that things get really interesting.

Liquidity mining, staking and yield farming all have the potential to notably increase returns and, when applied correctly, these techniques don’t need to bring in too much risk. Stablecoin liquidity pools, for example, mitigate the volatility inherent in the cryptocurrency market while rendering higher yields than those found in the traditional markets — providing a stable and profitable fixed-income vehicle for investors to explore. The possibilities for the Australian market are significant, and being among the first major regions to get engaged could actually be a huge push for the nation’s economy. Offering increased exposure to retail products will also be essential to bring the whole population along with the growth.

Related: Regulators are coming for stablecoins, but what should they start with?

Moving forward, if Australia can embrace this new asset class, it could very realistically see an injection of new capital into its markets and the broader economy, not unlike what we are seeing on the heels of the U.S. announcement. Furthermore, it would position Australia as a leader, inspiring other markets to benefit from the massive upside that can come from the implementation of cryptocurrency and its derivatives. Hopefully, those with the power see what is happening and choose to lean in.

This article does not contain investment advice or recommendations. Every investment and trading move involves risk, and readers should conduct their own research when making a decision.

The views, thoughts and opinions expressed here are the author’s alone and do not necessarily reflect or represent the views and opinions of Cointelegraph.

Will Hamilton is the head of trading and research at TCM Capital, which provides traditional capital markets and legal advisory services to the digital asset ecosystem. Will has been heavily involved in the cryptocurrency industry since 2016 and, prior to this, he worked at Pitt Capital Partners, the internal investment bank of Washington H. Soul Pattinson, an investment house based in Sydney.