Bitcoin investing is becoming a little more institutionalized in Australia, be it for retail investors or professionals.
DigitalX, based in Perth, has recently launched a bitcoin tracker fund for accredited investors only. This puts it among a small number of such fund managers, including Stack Funds in Singapore and Grayscale Investments in the U.S.
The bitcoin tracker is DigitalX’s second open-ended crypto fund. Its first went live in 2019, a diversified fund investing in the ten most liquid cryptocurrencies. That is a passive vehicle with strictures around maximum portfolio allocations and some discretion to ensure liquidity.
Now DigitalX has followed up with a pure bitcoin tracker, that has just won a breakthrough in distribution, says Leigh Travers, executive director.
NetWealth, among the largest digital platforms in Australia for funds, has just agreed to put the bitcoin tracker on its shelf. Such marketplaces have become the go-to for financial planners and independent advisors since last year’s Royal Commission into sharp banking practices forced banks to get out of direct distribution.
“We got confirmation from NetWealth just last week,” Travers told DigFin. He hopes this will give the crypto trackers a boost, as the two funds’ combined assets under management was last reported at A$5 million.
Whether the NetWealth deal results in meaningful flows remains to be seen.
Local advisory firm Hamel Strategic Partners has been helping DigitalX with connections to wealth-management channels such as NetWealth.
Chris Faddy, a consultant at Hamel in Sydney, says getting DigitalX onto NetWealth is a big win for the crypto space. But these are platforms where advisors can pick and choose what they like, so there’s no guarantee they will go for a bitcoin product. Faddy says conversations with asset allocators are more difficult.
“If anyone can succeed in this space, it’s Leigh, but there’s still a skepticism about digital assets and what they can do,” Faddy said. “There won’t be a Grayscale here for a number of years,” referring to Grayscale Bitcoin Trust in the U.S., whose assets under management hit $2.2 billion at the end of the first quarter of 2020, mostly from institutional investors. Its monster Q1 raised over $500 million – but the trust has been around since 2013, also marketing just to professional investors.
Travers said the path to bigger AUM in Australia is retail, either by getting the funds accepted on wholesale wealth-management channels or launching an exchange-traded fund or other exchange-traded product on Australia Stock Exchange.
So far the Australian Securities Investment Commission has rejected bitcoin ETFs, as has its U.S. counterpart. (Investors can buy or sell a trust in their brokerage account and accept that risk; an ETF’s public nature has regulators worried about market manipulation among other concerns.)
However, another Aussie fintech has found a route to retail: Raiz Invest won approval this year from ASIC to allow investors in its robo-advisory app to allocate up to 5% of portfolios to bitcoin. Raiz launched the feature in May.
Raiz was rebranded from its origins as Acorns Australia. Like the U.S. version of Acorns (from which it was originally spun), Raiz began as a micro investment app funded by users’ allocating spare change from retail purchases.
George Lucas, the firm’s Sydney-based founder and CEO, says the discussion with ASIC to launch a bitcoin sleeve was not difficult, just long. Part of winning approval included integrating into U.S. crypto firm Gemini to serve as Raiz’s sub-custodian.
The portfolio now has A$20 million worth of bitcoin subscriptions, Lucas says. Unlike digital brokers like Robinhood, which launched crypto trading to attract new customers, Lucas says Raiz has only marketed its bitcoin capability to existing users. “This is not meant for trading,” he said. “It’s a long-only investment into bitcoin.”