Regulation Can be Misunderstood as Approval

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With the ASX set to debut its first bitcoin ETF this week, we thought a little reminder to ‘tune out the noise’ would be helpful, by providing some rational perspective of what this actually means!

It all starts with lobbying. Large investors also fund lobbyists who push their cases with lawmakers and regulators. But lobbying activities need a sounding board to have an impact. Indeed, lawmakers have sometimes facilitated the influx of funds by supporting the supposed merits of Bitcoin and offering regulation that gave the impression that crypto assets are just another asset class. Yet the risks of crypto assets are undisputed among regulators.

The use of ETFs as financing vehicles does not change the fair value of the underlying assets. An ETF with only one asset turns its actual financial logic on its head (although others exist). ETFs normally aim to diversify risk by holding many individual securities in a market. Why would anybody pay fees to an asset manager for the custody service of only one asset – instead of using the custodian directly, which is in most cases one huge crypto exchange? Moreover, there were already other easy ways to gain listed exposure to Bitcoin or to buy Bitcoins without any intermediation. The problem has never been a lack of possibilities to speculate using Bitcoin – but rather that it is only about speculation (Cohan, 2024). Finally, it is incredibly ironic that the crypto unit that had set out to overcome the demonised established financial system should need conventional intermediaries to spread to a broader group of investors.

The reality is that Bitcoin’s price level is not an indicator of its sustainability. There is no economic fundamental data, there is no fair value from which serious forecasts can be derived. There is no “proof of price” in a speculative bubble. Instead, a reflation of the speculative bubble shows the effectiveness of the Bitcoin lobby.

There are more investment products and options available to investors than you can believe today, including 52 new ETFs admitted to the ASX in 2023 alone (both active and passive). Regardless of whether it’s a new ETF listing or a Fund Manager releasing a new Managed Fund or an unlisted Investment Trust (the list goes on), it is the underlying assets, manager discipline and the cost to manage that matter. And just as importantly, how they fit into a well-designed long-term investment strategy to provide an investor with confidence that there is a high level of certainty around the expected rate of return over the long term for achieving their most important goals in life.

ASX set to debut its first bitcoin ETF this week


Paul Shepherd (CFP® Professional, BEng, DipMgt, DFS[FP]) is a representative of Alman Partners Pty Ltd, Australian Financial Services Licence No: 222107.

Note: This material is provided for GENERAL INFORMATION ONLY. It has not been taken into account your personal objectives, situation or needs. The information is objectively ascertainable and is not intended to imply any recommendation or opinion about a financial product. This does not constitute financial product advice under the Corporations Act 2001 (Cth). It is recommended that you obtain financial product advice before making any decision on a financial product such as a decision to purchase or invest in a financial product. Please contact us if you would like to obtain financial product advice.