As cryptocurrencies continue to make waves in the world of finance, the Australian Securities Exchange (ASX) is reportedly preparing to join the growing list of exchanges adopting crypto-based financial products.
While CBOE Australia, another exchange, has allowed spot Bitcoin exchange-traded funds (ETFs) since April 2022, the ASX is poised to cater to a wider audience of investors if it welcomes these popular investment vehicles.
VanEck leads charge toward ASX spot Bitcoin ETFs
Leading investment firm VanEck has been pushing for the ASX to allow the trading of spot Bitcoin ETFs since 2021. Following the US Securities and Exchange Commission's (SEC) ruling on spot Bitcoin ETFs and, more recently, their approval in Hong Kong, financial institutions in Australia are increasingly eager for the ASX to follow suit.
Arian Neiron, CEO and managing director of VanEck Asia Pacific, wrote in March, “Since the US SEC ruling, we’ve experienced a significant uptick in queries and requests from the adviser and broker community regarding our submission to ASX to launch a Bitcoin ETF. The demand for access to Bitcoin via a listed vehicle traded on ASX has been increasing and many of our clients have told us that their clients are already positioned to have an allocation ready to invest.”
He continued, “However, contrary to some representations that have recently been made to the media, approval for an ASX-listed Bitcoin ETF is not imminent. There are still a number of hurdles from a regulatory and exchange framework perspective that must be worked through as well as approval from ASIC, before we will see a Bitcoin ETF on ASX.”
VanEck is no stranger to long approval processes. In January, the firm received SEC approval for its VanEck Bitcoin Trust (BATS:HODL) almost six years after initially filing for a spot Bitcoin ETF in the US.
VanEck was the first firm to file an application for a spot Bitcoin ETF on the ASX, and resubmitted paperwork in February. Other prospective issuers include BetaShares Holdings, DigitalX and Monochrome, which filed in July 2023.
Australian pension funds may buy into spot Bitcoin ETFs
Jamie Hannah, deputy head of investments and capital markets for VanEck Australia, believes that Australia’s AU$2.3 trillion self-managed superannuation market, where around a quarter of Australia’s retirement assets are held, could contribute sizeable inflows in the event that spot Bitcoin ETFs are approved.
Indeed, new figures from the Australian Taxation Office provided in March and reported by the Sydney Morning Herald show that self-managed super funds hold 76 percent more crypto assets compared to three years ago. They held virtually no crypto assets just five years ago, highlighting a rapid growth in interest.
“A significant number of crypto investors in Australia want to allocate at least a percentage of their retirement funds to cryptocurrencies,'' said Jason Titman, chief operating officer at Swyftx, a crypto exchange based in Brisbane.
Spot Bitcoin ETFs gain worldwide momentum
Institutional investment in digital assets has increased and is poised to continue as cryptocurrencies become more mainstream. Spot Bitcoin ETFs in particular have become appealing in recent years. Canada was the first country to offer these products in 2021. Exchanges in Brazil and Amsterdam also began trading spot Bitcoin ETFs in 2021. El Salvador went as far as listing Bitcoin as legal tender alongside the US dollar in 2021.
In the US, 10 spot Bitcoin ETFs were approved on January 10 of this year after years of legal battles between regulators and crypto exchanges, with crypto groups and even certain politicians urging the SEC to allow them. Since their approval, US spot Bitcoin ETFs have amassed over US$52 billion in assets under management.
Bitcoin's continued prominence could prompt other nations to explore the possibility of offering more digital assets. Hong Kong recently approved a list of spot Bitcoin and Ether ETFs, allowing them to begin trading on April 30, and analysts and experts are speculating that other Asian countries may soon follow suit.
Karim Saber, a research associate at 21Shares, has suggested that South Korea could be next after the Bitcoin-friendly Democratic Party of Korea’s recent electoral win. One of the party's promises was that it would allow spot Bitcoin ETF trading and, according to sources for Cointelegraph, it will formally request that the Financial Services Commission reconsider its position on their legal status after the opening of the National Assembly in June.
Additionally, a March survey of Singaporeans by Independence Reserve indicates growing investor interest in cryptocurrencies, prompting some analysts to believe that Singapore could eventually allow spot Bitcoin ETFs as well.
The London Stock Exchange is also taking steps in this direction, as it is currently accepting proposals for physically backed Bitcoin- and Ether-related exchange-traded notes, with plans to list securities on May 28.
How are cryptocurrencies regulated in Australia?
The regulatory landscape surrounding cryptocurrencies is evolving. In Australia, cryptocurrencies are treated as assets that can be bought, sold, stored and used as a payment method, although merchants have the right to refuse them. Australia has no specific cryptocurrency laws, but there are laws in place that apply to the crypto sector.
The Australian Securities and Investments Commission (ASIC) serves as the primary financial services regulator. ASIC classifies crypto assets as exchange-traded products, placing crypto tokens and related products such as ETFs under its purview. Companies offering such products must comply with regulations set forth by the ASIC.
In 2017, the Financing Act 2006 was amended to introduce anti-money laundering and counter-terrorism financing measures. This amendment required all cryptocurrency exchanges operating under Australian law to be registered with the Digital Currency Exchange Register managed by the Australian Transaction Reports and Analysis Centre, Australia’s financial intelligence agency and anti-money laundering and counter-terrorism financing regulator.
In October 2021, ASIC revised its rules for Australian financial services licences, stating that institutional support and acceptance of the underlying crypto assets are required for a spot ETF to be approved.
Additionally, "reputable" and "experienced" service providers must be willing to support such products, further strengthening Australia’s regulatory framework for cryptocurrencies.
In 2022, New South Wales Senator Andrew Bragg introduced the Digital Assets Bill 2022, which proposed that a licencing and reporting framework for digital asset exchanges, stablecoins and custody services be established. The bill later became the Digital Assets (Market Regulation) Bill 2023, which was ultimately rejectedBill2023.pdf) by Australia's Senate Economics Legislation Committee on grounds that it lacked detail and conflicted with the government's approach.
Prime Minister Anthony Albanese’s government released a token-mapping consultation paper in February 2023 to build a “shared understanding” of crypto assets between consumers and regulators. In October 2023, the Department of the Treasury released the Regulating Digital Asset Platforms proposal paper, which was built on findings from the token-mapping paper and feedback from a consultation period that ended on March 3, 2023.
Drafted legislation for new crypto asset licencing and custody rules is expected to be revealed sometime in 2024. Once it becomes law, exchanges will have 12 months to make necessary changes.
No formal legislation has been introduced yet. However, Reuters reported on May 7 that the Australian Tax Office is seeking the personal data and transaction details of up to 1.2 million user accounts. It will reportedly use the information to identify crypto traders who failed to report their earnings and did not pay the required capital gains tax.
Investor takeaway
The increasing interest in cryptocurrencies among investors and the recent approval of spot Bitcoin ETFs in other countries suggests that the ASX may soon follow suit. As momentum builds, it will be interesting to see how cryptocurrencies will shape the world of finance in Australia and beyond in the coming years.
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Securities Disclosure: I, Meagen Seatter, hold no direct investment interest in any company mentioned in this article.