Australian Crypto ETF Stalled by High Collateral Requirements

The creation of Australian-based spot Bitcoin ETFs is being hampered by what some fund managers regard as excessively high collateral requirements being imposed by traditional clearing houses. 

High collateral obligations mean many clearing participants are reluctant to agree to trade Bitcoin ETFs, with only three out of 35 acceding to the requirements. The ASX’s internal, independent clearing house, ASX Clear, requires at least four to get involved before Bitcoin ETFs can be made available to investors.

Spot Bitcoin ETFs are backed by actual Bitcoin, as opposed to Bitcoin Futures ETFs which are backed by Bitcoin Futures contracts. Generally, crypto futures ETFs have faced lower regulatory hurdles and are therefore currently more common, but spot ETFs have several advantages that make them more attractive to many investors.

High Collateral Costs Intended to Offset Risk

ASX Clear sets collateral requirements for different investment products based on risk. Following an assessment of the risks and volatility of Bitcoin, ASX Clear decided that a Bitcoin ETF would require a 42 percent margin to be lodged against each trade, which is very high compared to other investment products.

To get a sense of just how high these collateral requirements are, the BetaShares Crypto Innovators ETF, which invests not in cryptocurrencies but in 34 companies involved in the digital asset industry, faces collateral requirements of under 15 percent.

Speaking to the Australian Financial Review, the ASX’s chief risk officer Hamish Treleaven explained the high requirements:

In all of our decision-making on this we have remained focused on appropriate risk management for the clearing house – that’s our regulatory obligation.

Hamish Treleaven, chief risk officer, Australian Securities Exchange

Lucrative Prize Awaits First Bitcoin ETF

There are currently several fund managers racing to launch the first Australian Bitcoin ETF, including Betashares, Cosmos Assets Management, ETF Securities, Monochrome Asset Management and VanEck Australia. 

ETF Securities announced its planned launch of Australia’s first spot Bitcoin ETF last year, but like those of all such products, this has been delayed due to regulatory issues.

Many in the industry believe the first fund to launch could attract over A$1 billion of capital, with some predicting over A$100 million could pour in on launch day alone – more than double the funds BetaShares Crypto Innovators ETF attracted on its first day of trade last November.