Can Bitcoin edge out gold and bonds as a future store of value?

Australia has yet to see its first direct Bitcoin ETF

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A man stands on a road marked Bitcoin with a questionmark ahead.

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Bitcoin (CRYPTO: BTC) has mostly recovered from its Omicron-driven selloff over the weekend.

The world’s leading crypto, it turned out, moved very similarly to global share markets. Though, as you’d expect, its price moves were even larger.

With Aussie investor interest in cryptos on the rise, Australia has recently seen the launch of several crypto-related exchange-traded funds (ETFs).

The Cosmos Global Digital Miners Access ETF (DIGA), for example, commenced trading on the Aussie exchange Chi-X on 28 October.

Now, DIGA doesn’t invest directly into Bitcoin, Ethereum (CRYPTO: ETH), or any cryptos. That’s still verboten by Aussie regulators. Instead, DIGA gives investors exposure to cryptocurrencies via a basket of cryptocurrency mining and infrastructure companies.

With DIGA entering its second month of trading, the Motley Fool reached out to Dan Annan, CEO of Cosmos Asset Management, for his insights into Bitcoin and crypto ETFs Down Under.

You can find part 1 of that interview here.

Below, we bring you part 2.

Motley Fool: You’ve expressed an interest in launching a direct Bitcoin ETF. What are the hurdles?

Dan Annan: Launching a direct Bitcoin spot ETF is really about ensuring that the regulator allows investors to gain pure, physical exposure to the cryptocurrency itself. Our regulator, ASIC, has come a long way in a short period.

Regulators, and not just in Australia, are beginning to understand that Bitcoin in a fully regulated environment, such as an ETF, has more protections than any other mechanism to own Bitcoin.

MF: What type of ETF is Cosmos proposing?

DA: Our proposal is for a physically backed Bitcoin fund. So, we would hold Bitcoin equivalent to the net asset value (NAV) of the fund. We would publish daily the BTC held so investors would be able to easily estimate the minute-by-minute price of the underlying fund.

There wouldn’t be a re-rating requirement as we would only hold a single asset, Bitcoin.

MF: Are there any issues here due to the historically high price volatility?

DA: Large overnight movements just result in larger opening unit prices. This is no different to the ownership of physical Bitcoin. If you own 1 Bitcoin that you trade daily, then go to sleep, when you wake you’re exposed to the current Bitcoin price.

MF: We have to ask. Do you have any forecast for where the Bitcoin price may be heading in 2022?

DA: We can’t forecast what the Bitcoin price will be in 2022. We would need a genie bottle for that!

However, what we can do is look at the current participation rate of ownership, the market cap, and ask ourselves, is it over? What is the institutional sentiment for Bitcoin as an asset class to manage the balance sheet? Are more people going to join the network?

The short answers to these questions are all a positive ‘yes’.

For an example, if we believe that Bitcoin/Ethereum is the future store of value and a hedge to inflation then let’s look at the market capitalisation of these traditional asset classes:

  • Total market cap of gold: US$11.3 trillion
  • Total market cap of bonds: US$119 trillion
  • Total market cap of Bitcoin: US$1.08 trillion
  • Total market cap of Ethereum: US$504 billion

Now, if there’s just a shift of 5% from the traditional asset class to Bitcoin over the next couple of years, what happens to the price of Bitcoin? And what is the investment case or opportunity for the picks and shovels providing the infrastructure for the cryptocurrency platform?

Simple economics of supply and demand tells us that as Bitcoin adoption increases, we should see the price increase until we hit a stage of ‘hyperbitcoinisation’.

We believe DIGA – the Cosmos Global Digital Miners Access ETF – is designed to give investors access to participate in this growth opportunity.

**

(You can find out more about DIGA here.)

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The Motley Fool Australia’s parent company Motley Fool Holdings Inc. owns shares of and has recommended Bitcoin and Ethereum. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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