The Australian Securities and Investments Commission (ASIC) has taken slow but cautious steps regarding an exchange-traded product tracking the performance of bitcoin or another cryptocurrency.
In the latest development, the organization published guidance detailing regulatory requirements for funds waiting to offer crypto ETPs, including exchange-traded funds (ETFs) and structured products. The guidance is designed to ensure not only investor protection but also increase transparency.
ASIC’s Supports Bitcoin and Ether-backed Funds
The published document stated that any cryptocurrency must meet five criteria to qualify as a permissible asset to back an ETP or other structured product. These include:
- High level of institutional support and acceptance and being used for investment purposes
- Availability of service providers such as custodians, fund administrators, market makers, and index providers that are reputable and experienced as well as prepared to support ETPs that invest in or offer exposure to the crypto-asset
- Availability of mature spot market
- Presence of regulated futures market for the purpose of trading derivatives linked to the crypto-asset,
- Price mechanisms should be robust and transparent for the asset throughout the trading day and strike a NAV price.
ASIC maintains that these factors are deployed with intentions to support a ‘fair, orderly and transparent market’ by guaranteeing that only those digital assets that meet these criteria can be supported within the ETP structure. In this way, the regulatory entity hopes to lessen the chances of price manipulation concerns.
Besides, ASIC confirmed that the two largest cryptocurrencies – Bitcoin and Ethereum – qualify based on the above-mentioned factors.
While it has given the green light to set cryptocurrency-backed funds dedicated to retail investors, products linked to BTC and ETH are the only ones that will be eligible for approval so far. But ASIC expects the inclusion of other assets for ETPs in the future.
Australia’s Regulatory Climate
The growing demand for new investment vehicles for Bitcoin (BTC) and Ethereum (ETH) had existed for a long time, even before Wall Street decided to open its doors to the sector. The launch of last week’s Bitcoin Futures ETFs, however, reignited the age-long debate over the safety of crypto-backed investment products. But that hasn’t stopped firms from submitting proposals of the same.
As a result, several countries are now wrestling with the practicalities of approving such investment products backed by unregulated and volatile digital assets. Australia has found itself in a similar situation.
The news comes just a week after the Australian Senate Committee recommended for more clarity, robust, and friendlier regulatory framework for the burgeoning crypto ecosystem in the country.