Crypto doubt to persist among advisers despite SEC’s nod to bitcoin ETFs

Last week, the Securities and Exchange Commission (SEC) greenlit the commencement of trading for bitcoin ETFs in the US, marking a significant milestone in the recognition of bitcoin as a legitimate asset class.

Grayscale, VanEck, and Fidelity are among the 11 funds authorised to issue securities tethered to the movements of the cryptocurrency.

In Australia, Global X was the first provider to launch spot bitcoin and Ethereum ETFs. In fact, Global X 21Shares Bitcoin ETF (Cboe: EBTC) and Global X 21Shares Ethereum ETF (Cboe: EETH) remain the only spot cryptocurrency ETFs in Australia. However, economists predict that Australian regulators are likely to follow the SEC’s lead, with reports already circulating that the ASX is due to approve the listing of a local bitcoin EFT created by Monochrome Asset Management.

The approval of cryptocurrency-linked ETFs is expected to enhance accessibility to the asset class by providing easier entry through regular investment accounts, circumventing issues associated with cryptocurrency exchanges.

But while AMP’s chief economist, Shane Oliver, believes this approval brings the crypto industry closer to the world of regulated traditional finance, he remains sceptical regarding its uptake.

“Despite being 15 years old now, bitcoin is yet to establish a clear use beyond being something to speculate on or for use in illicit transactions,” Dr Oliver said.

“It’s very unlikely to be used on a broad basis for transactions in well-managed countries (and that does not include El Salvador!), its extreme volatility means that it’s not a good store of value and it’s not a good hedge against inflation having collapsed in 2022 just when inflation surged.”

He pointed out that this characteristic makes valuation impossible, unlike property or shares, which rely on a stream of rent or earnings for a basis and stands in stark contrast to commodities that have tangible industrial and consumer applications.

“So I remain a sceptic and fear bitcoin and much of the recurring and expanding buzz around crypto is just a house of cards,” Dr Oliver said.

In light of what has widely been celebrated as the legitimisation of crypto, Financial Advice Association Australia’s (FAAA) chief executive officer, Sarah Abood, cautioned about specific risks tied to cryptocurrency, emphasising that it is not an ASIC regulated financial product.

“Most financial advisers would see these types of assets as speculation rather than investments, at this stage,” Ms Abood told ifa.

“At the moment, very few would be willing to make a recommendation to a client to invest in them.”

Besides its speculative nature, advisers confront particular challenges that lessen their inclination to recommend crypto to clients, primarily because the majority of insurance policies they hold, such as professional indemnity, do not provide coverage for cryptocurrencies that are not on their approved product list.

This absence of professional advice in this domain has led many Australians to seek guidance from finfluencers for crypto-related decisions, resulting in uninformed and potentially risky investments.

As such, Ms Abood said: “Australians should only act on the advice of qualified, professional financial planners who are complying with a code of ethics to provide advice in your best interests, where there are consumer protections, regulators are supervising them, and they are providing support and assistance for clients.”