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Monochrome’s Cboe spot bitcoin ETF application sparks first-to-market debate

By Maja Garaca Djurdjevic and Rhea Nath
5 minute read

Monochrome has announced its strategic decision to shift the application for its flagship product, the Monochrome Bitcoin ETF, to the Cboe Australia exchange, sparking a first-to-market debate with Global X.

Brisbane-based Monochrome Asset Management, which initially submitted its application to the ASX in July 2023 with plans for a second-quarter 2024 launch pending regulatory approvals, has decided to shift its focus to Cboe.

In a statement issued on its website late last week, the asset manager stated Cboe “aligns more closely with our strategic vision, market reach, and timeframe”, while maintaining its scheduled launch date.

Last month, InvestorDaily highlighted the competition among investment managers vying to launch the first ASX-listed bitcoin ETF, after VanEck announced it is “uniquely placed” to be the first to deliver the offering. However, the fund manager also tempered expectations regarding Monochrome’s timeline, stating that despite recent media representations, approval for an ASX-listed bitcoin ETF is not imminent.

VanEck cited “a number of hurdles from a regulatory and exchange framework perspective”, noting that several aspects need to be addressed, including approval from the Australian Securities and Investments Commission (ASIC), before a bitcoin ETF can be listed on the ASX.

Now, just over a month later, Monochrome has issued a statement announcing its realignment to Cboe.

Jeff Yew, the chief executive officer of Monochrome, declined to provide further details on the rationale behind the decision to steer away from the ASX, stating only that Cboe Australia aligns better with the firm’s plans. He told InvestorDaily, “Cboe Australia matched our criteria.”

“We anticipate a decision from Cboe Australia about the Monochrome Bitcoin ETF before the middle of 2024.”

In the statement on Monochrome’s website, the firm asserts that Cboe’s 51-year history as a market operator and its leading position in financial innovation across North America, Europe, and Asia-Pacific align with Monochrome’s vision to expand its presence in Asian markets.

Responding to InvestorDaily’s request for comment on the occasion of Monochrome’s announcement, VanEck’s deputy head of investment and capital markets, Jamie Hannah, said the firm is still on track to be the first Australian spot bitcoin ETF on the ASX.

“VanEck is working closely with the ASX to bring the first bitcoin ETF to the exchange,” Hannah said.

“While the requirements are significant, we are on track to meet them and believe we are the best placed fund manager in Australia with the prerequisite global expertise and heritage managing cryptocurrencies.”

Battle for first place

Competition among firms seeking to be the first to the post with a bitcoin ETF offering on the ASX was spurred by the Securities and Exchange Commission’s (SEC) approval for the product in the US.

At the time, InvestorDaily reported that presently, crypto ETFs are only available on Cboe through the Global X 21Shares Bitcoin ETF and Global X 21Shares Ethereum ETF.

But Monochrome now claims that once its application receives approval, the Monochrome Bitcoin ETF will in fact be the “first spot bitcoin ETF in Australia which allows direct holding of bitcoin”.

Speaking to InvestorDaily, Yew explained the reasoning behind Monochrome’s assertion.

He underscored Monochrome as the sole compliant fund under recent Australian regulations mandating issuers of crypto asset exchange-traded products to obtain a specific “crypto assets” licence for substantial crypto assets holdings.

Namely, back in 2021, the corporate regulator, ASIC, announced that responsible entities that intend to hold underlying assets that comprise crypto assets will need to hold an authorisation in relation to crypto assets.

This new “crypto asset” authorisation can be validated on the AFSL of the issuer of the Monochrome Bitcoin ETF.

“There are no other bitcoin ETPs currently quoted in Australia that are authorised under this rule,” Yew said.

He further clarified that Global X funds use a wholesale-retail feeder fund structure, where a retail ETF invests in a wholesale fund holding digital assets, avoiding the new digital asset provisions specific to retail funds. While this may imply no crypto holdings to ASIC, Yew questioned the marketing of these funds.

“This means, for those funds, from a regulatory perspective, their justification to ASIC is likely that the ETF simply holds a managed fund and holds no crypto assets, hence it doesn’t need to comply to ASIC’s rule,” Yew explained.

“However, we are aware the marketing of those funds may suggest otherwise.

“A direct holding spot bitcoin ETF provides investors with a straightforward, transparent pathway to exposure. It is identical to how spot bitcoin ETFs are structured in the US.”

Global X, however, insists it was the first spot bitcoin ETF in the Australian market.

Speaking to InvestorDaily, Evan Metcalf, chief executive officer at Global X Australia, said: “We very much consider our funds to be the first spot bitcoin and spot Ethereum ETFs in the market.

“They’ve been trading for nearly two years and our spot bitcoin ETF has just under $100 million in AUM, with around $20 million in the Ethereum product.”

Regarding Monochrome’s assertions that the Global X fund doesn’t qualify as a spot bitcoin ETF, Metcalf said: “We have a slightly different fund structure and our fund structure is approved by ASIC. It is compliant under ASIC regulation.”

Moreover, addressing the “crypto asset authorisation” claims made by Yew, Metcalf explained the crypto licensing regime didn’t exist when Global X listed its ETFs with Cboe.

“From an end-investor perspective, there’s no difference in trading our crypto ETF versus anyone else’s, there is underlying bitcoin sitting with the custodian and investors have an absolute entitlement to that bitcoin, so in that sense, it is very much a spot bitcoin ETF,” Metcalf stated.

“We’ve had no regulatory issues at all, ASIC were very much involved in our listing process, and they were aware of the exact structure of our funds and they were fine with all the regulation, no concerns raised.”

VanEck’s Hannah agreed with Global X, telling InvestorDaily that “feeder funds are a legitimate structure that have been used by fund managers worldwide for many years”.

“So I don’t think there’s any glaring issues with the structure.”

While the status of Monochrome as the first spot bitcoin ETF in Australia remains debatable, one certainty is the escalating competition in this sector, which promises to benefit investors with an expanding array of bitcoin ETF options in the near future.