Holon Investments announced on Monday it may not be able to continue operating the three unlisted funds invested in bitcoin, ethereum and filecoin it launched in July, after the Australian Securities and Investments Commission slapped a stop order on it. The regulator has listed cryptocurrencies as a top enforcement priority for the year ahead.
And last week, Global X’s primary rival in the local market, Cosmos Asset Management, said it would de-list its crypto ETFs from the Cboe Australia exchange. Cosmos declined to comment on the reasons for the withdrawal, other than to say that protections were in place to ensure investors’ money was safeguarded.
Sources close to Cosmos suggested the firm has failed to attract sufficient assets under management to remain viable, given the specific costs of crypto custody and professional indemnity insurance arrangements.
Cosmos’ bitcoin and ethereum funds had about $1.6 million in assets combined, while Global X’s funds had about $8.4 million under management, as at the latest public disclosure in September.
Global X (then ETF Securities) and Cosmos made history by launching Australia’s first sharemarket-listed funds invested in crypto assets, thereby providing a regulated exposure to a controversial and unregulated market.
‘Relatively quiet’
Their listing in May followed a multi-year regulatory approval process and high-profile marketing campaign, but coincided with the collapse of algorithmic stablecoin Terra, which sparked widespread sell-offs in crypto markets and rocked confidence in the nascent sector.
Mr Metcalf said the insurance and other costs of running the crypto ETFs were “not presenting a challenge” for Global X. But he conceded that the funds had experienced a “relatively quiet” reception from investors, amid the market downturn known as the second crypto winter.
The unwillingness of many local stockbrokers to provide client access to the funds – despite their being regulated by ASIC and listed on Cboe – remained a roadblock to fund flows, he added.
“That’s one area that is limiting the potential opportunity,” he said. “I think it is just people becoming comfortable with cryptocurrencies as an asset class, and there are some additional costs associated with trading crypto on exchange from a broker point of view.”
ASX Clear, the national clearing authority, requires market participants to stump up a margin on crypto ETF trades at a cost of 42 per cent of the value of the transaction. Global X executive Kanish Chugh described the requirement as “prohibitively expensive” at the time. The Financial Review also reported that compliance offers at some broking firms were blocking trade due to regulatory concerns.
Mr Metcalf said he expected flows to pick up in Global X’s Australian crypto ETFs if and when the underlying prices of bitcoin and ethereum (which are each down by about 50 per cent year-to-date) improved.
“We think there’s a lot to run and another cycle to come, in terms of innovation adoption of blockchain technology,” he said.
“When investors are ready, when the time is right, [our funds are] sitting on the shelf and there to meet that appetite.”
ETF Securities chairman and former Rich Lister Graham Tuckwell announced he was selling the Australian business earlier this year to focus on his family’s philanthropic activities. The firm launched the world’s first gold ETF in 2003.
Mr Tuckwell told the Financial Review he hoped the new owners would retain the ETF Securities brand post-completion.
Asked to respond, Mr Metcalf said:
“We took a very considered approach to whether we were going to rebrand the business. It was a case of what we built versus this massive global powerhouse that we can capitalise on. And we decided that the benefits are more in favour of the Global X side of that equation.”
