With over A$1 trillion worth of cryptocurrencies (cryptocurrencies) in circulation, bitcoin and cryptocurrencies in general are becoming a fast-growing asset class attracting investors.
Coinciding with the cryptocurrency market losing 2/3rds of its value over the last quarter, there has been a rise in Australian-listed exchange-traded funds (ETFs) giving exposure to cryptocurrencies such as bitcoin or ethereum .
Reading: Bitcoin etf asx
There are eight ETFs in Australia available for investors to gain exposure to cryptocurrencies
stockspot reviews and compares over 250 etfs in our annual stockspot etfs report. In this article, we test the best cryptocurrency ETFs in Australia on a variety of different metrics to provide our analysis on the most suitable option for investors.
- costs and slippage
- returns and trajectory
- exposure and holdings
- verdict and conclusion
cryp and dig launched in late 2021. since then, cryp has become the largest crypto ETF, by size, at $48 million. It broke the record for the fastest Australian ETF to reach $100 million from investors, achieving that milestone four days after launch. Say has struggled to gain traction, attracting just $2 million to date. the remaining cryptocurrencies were only recently launched and have struggled to gain traction since ebtc raised $4 million in assets.
costs and slippage
cryp is the lowest cost crypto ETF with an administration fee of 0.67% per annum. say it is more expensive, charging 0.90% p.a. 3iq-launched crypto ETFs that track bitcoin and ethereum are the cheapest direct exposure at 1.20% per annum. while other ETFs charge 1.25% per annum
Diega’s spreads are a whopping 2.37% due to its limited trading volume, the nature of the portfolio having high turnover (i.e. more actively managed) and less liquidity, and the amount of market makers, while crypto spreads are more contained. at 0.52%.
For etfs that track the underlying cryptocurrency, cpet has the lowest spreads at 0.24%, while et3q and bt3q are at 0.28% and 0.31% respectively.
cryp is the most liquid crypto ETF, trading nearly $800,000 in average daily volume. say has limited liquidity only trading around $5,000 a day. By comparison, some of the most popular global stock ETFs trade up to $13 million a day.
of the newer cryptocurrency etfs, ebtc has the most liquidity at $114,000 per day, followed by eeth at $77,000. we expect these etfs to have experienced muted liquidity in their first few months due to lower cryptocurrency demand driven due to the recent price drop.
returns and trajectory
Because cryp and dice were only recently released, they don’t have a long history of adequately measuring performance. since its launch, crypto is down ~80% while dice is down ~86%.
ETFs that track cryptocurrencies have also recently launched, but have had a rocky start to their ETF life. they fell as much as 44% in June 2022 alone.
Research shows that new ETFs are often launched just as retail interest peaks and before a period of low yields. We talked to the afr about this phenomenon just as these crypto ETFs were being launched and they seem to be following this pattern. this is one of the reasons we avoid niche themed etfs for clients when they are launching.
While some cryptocurrencies have historically made significant gains, they can also go through periods of large and severe price declines (such as 2011, 2015, 2018, and early 2022).
exposure and holdings
While both crypto and dice keep track of crypto companies, the way they select these companies is different.
cryp owns 27 companies, with the top 10 accounting for 76% of the ETF. divides its holdings into two company levels.
Tier 1 (comprising 85% of the ETF) are pure cryptocurrency companies that derive at least 75% of their revenue from crypto market service (eg mining, equipment, financial services) and have at least the 75% of their assets in cryptocurrencies like bitcoin or ethereum.
See also: Bitcoin: Time To Exit
Tier 2 (comprising 15% of the ETF) supports businesses with at least one dedicated crypto-focused initiative, such as buying, selling, holding, mining, trading and processing transactions.
This second level means that crypto can have companies that are not normally associated with crypto, such as paypal, square and nvidia. crypto is mostly concentrated in north america (~80% of portfolio) but has some exposure to germany, china, singapore and japan.
Diga has only 20 companies and the top 10 make up 92% of the ETF, meaning it is much more concentrated and less diversified. it is much more actively managed with its investment committee that meets every fortnight and potentially changes holdings on a monthly basis. Dice owns companies that have at least 80% of their revenue generated from sectors such as blockchain technology and digital mining infrastructure. Dice is more geographically diversified with more exposure to China and the UK, but is still heavily skewed towards North America (~80% of the portfolio).
There is a large overlap of holdings between crypto and dice with crypto owning 77% of the companies in dice. the notable exceptions in the underlying companies are crypto holding coinbase and microstrategy, to which it says it has no exposure.
For pure cryptocurrency ETFs that track the price of bitcoin and ethereum, their exposure differs in underlying holdings and currency.
verdict and conclusion
Whether you want to invest in a pure underlying cryptocurrency or a more holistic cryptocurrency industry will depend on your personal preferences.
Investors should not expect these ETFs to mimic the price movements of the underlying digital currencies and therefore may see some difference in returns. Unlike other markets like gold miners, the crypto market is not yet mature and there are only a limited number of publicly traded companies in the world. Many of the largest cryptocurrency exchanges are still privately owned companies, while publicly traded companies are relatively small in size. both crypto and dice give exposure to companies involved in the crypto market and have similar underlying holdings. cryp provides more diversification by allowing non-gaming ventures, compared to dice, which is solely focused on crypto gamers.
For the underlying cryptocurrencies, investors must determine whether they wish to gain access to the cryptocurrencies through a “feeder fund” that invests in an existing offshore ETF (such as Canada) or whether they wish to own the underlying asset through of a custodial cold storage wallet. . For unhedged exposure, EBTC and Eeth track cryptocurrency in AUD, but you may want to look at the USD alternative depending on your preference for a hedged or unhedged vehicle.
High-octane and therefore highly speculative investments like crypto ETFs can be the extra hot sauce in your portfolio to boost returns, but they can sometimes leave investors burned out if they invest too much. Our 2022 ETF report showed how investors in niche theme ETFs lost more than $100 million in one year. We recommend that if you want to invest in cryptocurrencies, you should only represent a small part of your portfolio, with most of your money invested in a low-cost diversified strategy such as the portfolios we offer at stockspot.