InFocus: Bringing crypto into the mainstream

While cryptocurrencies have seen sharp gains in recent years, they have managed to avoid the glare of the regulator and have not been widely used by retail investors. 

But the volume of people accessing it in unregulated ways, often seeking advice from social media and lured by the potential for huge gains, has led the corporate regulator to take a closer look and consider approving retail products. 

A report from the Australian Securities and Investments Commission (ASIC) into cryptocurrency, which released its findings at the end of October, gave the green light for firms to launch products in the space.

While this came with numerous caveats, it was the signal exchange traded fund (ETF) providers had been waiting for with BetaShares and VanEck both announcing plans to launch spot-based Bitcoin ETFs. This would put Australia ahead of the United States which was still awaiting regulatory approval for these type of products from the Securities and Exchange Commission (SEC).

BetaShares had already launched its Crypto Innovators ETF on the Australian Securities Exchange (ASX) which broke records by trading almost $40 million on its first day. Rather than investing directly in the asset, this invested in pure-play crypto companies and diversified companies with crypto-focused business lines.

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Luke Marshall, senior partner at KDM Financial, said around one-in-10 of his clients asked about cryptocurrency but that advisers were hamstrung as the asset was an unregulated product. 

“It is something we are looking at but the frustrating thing is that we legally can’t do anything about it. We can talk about it in a general sense for education purposes but we can’t give specific recommendations,” he said.

“Now BetaShares have that product, that’s at least one product out there that we can talk about and hopefully it won’t be too long until that is on platforms.”

However, Dave Rae, whose firm Federation Financial had an older client base than KDM, said he had not received any enquiries and expected it would be the preserve of those in their 20 to 30s.

Another move aimed at retail investors was an announcement by Commonwealth Bank (CBA) that it would be making the top 10 currencies available on its app. The bank said it had noted a “large number of clients” were already accessing the asset via crypto exchanges.

Marshall said the decision by CBA was an “ingenious” way for the big four bank to target younger consumers after it ended its Dollarmites program in October. The decision to hold only the top 10 currencies meant investors would avoid the volatile ‘Wild West’ currency options.

“It is an ingenious move by CBA to attract younger clients. Younger, Gen Z clients feel disenfranchised with finance, they can’t afford a property and feel locked out of the share market so they are sitting on the sidelines but now they have the opportunity in cryptocurrency,” Marshall said.

However, others warned investors may be falling guilty to ‘herd mentality’ and chasing market trends. 

Dale Gillham, Wealth Within chief analyst, said: “Until recently, trading cryptocurrencies was considered very high risk, as it was largely unregulated, which encouraged dodgy practices by some providers. 

“However, the news from CBA and the intentions of ASIC to regulate this market does add some respectability, which will reduce some of the risks Australians have been subjected to when trading cryptocurrencies. 

“That said, many investors fail to learn from the mistakes of the past and cryptocurrencies are just the latest vehicle investors are jumping into in the hope of making some quick gains.”