Crypto ETFs: Safe Bet Or Flaming Disaster Waiting To Happen?

Aussies love ETFs, but will Australia ever see thematic ETFs for cryptocurrency? Investment manager James Whelan responds.

Thematic crypto ETFs Bitcoin

Thematic crypto ETFs would allow investors to gain exposure to specific sectors of the digital asset market, opening up new potential for massive growth, but are thematic ETFs for crypto really a good idea? Investment expert James Whelan answers all the burning questions.

Aussie investors love ETFs, especially thematic ETFs.

Thematic ETFs provide investors exposure to broad swathes of niche industries, such as clean energy, space technology, cybersecurity, video games, cryptocurrency and other major market trends.

In November last year BetaShare’s Crypto ETF (ASX: CRYP) smashed records for the largest first-day ETF investment ever, racking up more than AU$42 million by close-of-day. This was five times larger than any day-one investment that came before it.

While investors may be happy for now with their exposure to cryptocurrency through CRYP, which invests mostly in publicly listed crypto exchanges such as Coinbase and Bitcoin miners like Marathon Holdings, this only scratches the surface of the investment potential in the crypto industry.

Despite the “less-than-ideal” market conditions of late, the cryptocurrency industry itself has seen enormous amounts of development and reached new levels of maturity over the past few months, forging clearer distinctions between different types of digital assets.

A thematic ETF in crypto would provide investors with exposure to these emerging, niche sectors that have grown to include GameFi, DeFi, Staking and many, many more still-growing areas of the market.

Are Thematic Crypto ETFs a Good Idea?

James Whelan, an Investment Manager at VFS Group in Sydney told DMARGE that crypto ETFS could be a good idea but there’s a series of factors that need to occur before successful implementation.

“Eventually I do believe cryptocurrencies will have thematic ETFs. What has to happen first is for crypto to be determined as some kind of financial product. From that time it becomes easier to include as a product in discussions with clients, but keep in mind – this puts aside all conversations on validity,” he said.

“Whether Bitcoin or Ethereum have a purpose is as much a moot conversation now as whether some tech stonks are relevant. The problem now is being able to actually talk to clients about them,” Whelan added.

Acknowledging the dire state of the broader market right now, Whelan stated, “there are some crypto ETFs at the moment but they’re either only investing in futures or they’re…troubled.”

CRYP ETF price since inception. Source, BetaShares.

And crypto ETFs are troubled. BetaShares record-breaking CRYP is currently down nearly 75% since its inception on November 4 last year, as a result of the wider tech and crypto downturn.

The Upsides and Downsides to Crypto ETFs

When asked about the upsides that may come with thematic crypto ETFs, Whelan stated:

“Being able to access crypto on the same platform you use does make life easier for people managing money and people managing their own. Having your ‘legitimate’ investments on one regulated platform and your crypto on a platform that sits aside from that is a pain,” he said.

“But it’s not a new pain. The key thing is knowing that the product you buy has been reviewed by regulators and trades on a regulated exchange,” Whelan adds.

“The key downside is that it possibly takes away some of the ‘edge’ of some coins. Don’t forget crypto started as a libertarian rebellion against the existing monetary system which allowed the GFC. For its future to be in the hands of that same authorities may see some of that rebellious shine lost,” Whelan cautions.

Whelan says that he personally believes thematic crypto ETFs could prove to be quite a good idea.

“I have a belief that there’s a variety of products to suit everyone and there’s a host of clients who want (and need) crypto on their portfolios.”

For and Against Thematic Crypto ETFs

Whelan says there are many reasons for and against thematic crypto ETFs, but concludes the digital asset market is still very, very risky.

“The simple reason for investing in a crypto ETF is to gain leverage to the upside in a coin. It could be to take advantage of new trends or uses for various chains that are created. It could be to (gasp!) hedge a portfolio,” he said.

“There was a time very recently when you could see Bitcoin taking the place of gold. All the conditions were right for gold to rally but Bitcoin received all the flow. Maybe one day it can sit alongside gold as a true inflation hedge. Easy access to it on regulated exchanges will assist that,” he said.

But ultimately, Whelan still thinks the biggest problem facing crypto is the fact that it doesn’t really exist.

“Main reason against it? It’s invisible computer money.”

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