The debate about the safety of cryptocurrency-backed investment products has been reignited with the introduction of the United States’ first Bitcoin futures ETF. Many other countries grapple with the complexity of approving investment products backed by volatile and unregulated digital assets. Australia seems to be one of them.
The country’s financial regulator today released a new set of guidelines. It aims to protect investors and increase transparency. It does so within a week of a Senate committee report calling on the country to introduce new digital asset laws that would increase Australia’s participation in global cryptocurrency competition.
Guidelines issued by the Australian Securities and Investments Commission (ASIC) have focused on determining how product issuers and market participants can comply with cryptocurrency ETP regulations. For example, those who have the underlying assets in a crypto ETP must have a license. A new “Crypto-Asset” section has been added to ASIC license applications for these licensees.
In essence, the watchdog has given the green light to create cryptocurrency-backed funds for retail investors. However, only Bitcoin and Ether related products are eligible for approval. In fact, the watchdog insists on including only crypto assets with transparent pricing mechanisms, institutional support, and a relevant futures market, taking into account only the two most important cryptocurrencies.
Best practices for market participants were also included in the guidelines. It shows how investment products should be licensed and controlled by market participants and how product issuers should configure and manage them.
The main areas covered by the agency’s guidelines include disclosure, risk management, pricing methodology, custody of crypto assets, and regulatory and supervisory standards.
ASIC Commissioner Cathie Armor said:
“We recognize the interest and demand for ETP and other investment products that hold crypto assets in Australia… Crypto assets have unique properties and risks that product issuers and market participants must consider to meet their existing regulatory obligations.”
The ASIC had already ruled in July that a Bitcoin ETP could carry risk and the country should proceed with caution if it wishes to issue its own cryptocurrency-backed investment products. He had also contacted market participants for their comments on this issue.
It did so in response to reports that the country’s stock exchange (ASX) plans to launch Australia’s first crypto ETF later this year and is considering a large number of ETF applications.
The new guidelines are expected to revive efforts by fund managers across the country to launch a cryptocurrency-backed ETF, including BetaShares, VanEck, and Cosmos Asset Management, which currently have products in development. However, this month two crypto-exposed ETFs were listed on the local exchange Chi-X and another is expected to begin trading on the ASX in November.