Some interest seen in new spot Bitcoin ETFs but local brokerages tread with caution
Uma Devi
INVESTORS in Singapore have shown some interest in the new spot Bitcoin exchange traded funds (ETFs) that began trading in the US last week.
However, banks and brokerage firms in the Republic appear to be approaching the new alternative investment class with relative caution given its risky and speculative nature.
A total of 11 spot Bitcoin ETFs began trading on stock exchanges in the US on Jan 11, and some of these funds have been made available on certain trading platforms in Singapore.
Jean Paul Wong, general manager of FSMOne, said there has been some interest in these newly launched ETFs but this appears to be restricted to just “a smaller group of investors” at the moment.
“These investors may be more familiar (with) Bitcoin prospects, or they may simply be speculating on Bitcoin prospects,” he said.
The spot Bitcoin ETFs available on FSMOne are accessible to all investors, but are subject to certain caveats. For example, the platform – along with others in the industry – conducts a customer account review to determine whether investors have the requisite knowledge or experience to trade in listed specified investment products.
However, Wong warned that investors must exercise caution on their part as a large majority of cryptos have little to no intrinsic value.
“Most cryptos lack any underlying earnings or cash flows, and this is a red flag for any prospective investor, as it is hard to derive a reliable intrinsic value of an asset if it cannot generate income,” he said.
“Without fundamental support, we believe crypto is fuelled by sentiment, and the current rally is therefore on thin ice.”
Phillip Securities’ deputy head of global markets and ETF desk Jason Fu said the brokerage has observed interest from its clients for spot Bitcoin ETFs, particularly among retail investors.
He reckoned this could be due to advantages such as typically lower costs and easier trading access that the ETF structure offers.
However, Fu noted that spot Bitcoin ETF allocations in clients’ portfolios typically amount to just “a few percentage points”.
“Bitcoin is a risky investment with high volatility and should only be considered by those with a high risk tolerance, or already in a strong financial position,” he said.
However, he added that the latest listings of spot Bitcoin ETFs could see investor access to the cryptocurrency increase, as anyone with a brokerage account can now buy these ETFs.
Some players have also limited access to certain spot Bitcoin ETFs for now. Citigroup currently allows only institutional investors to purchase these ETFs, and blocks trades done on the bank’s retail brokerage platform.
Regulators here have repeatedly warned about the risky nature of trading cryptocurrencies, with the Monetary Authority of Singapore calling it “highly risky and not suitable for the general public”.
Hassan Ahmed, country director of Coinbase Singapore, said regulatory clarity and balancing innovation, consumer protection and consumer access are crucial in ensuring a responsible market.
“While we cannot predict how the market will respond, the significance of the approval of spot Bitcoin ETFs in the US is not to be underestimated,” he said, adding that the nod for the 11 ETFs is indicative of the growing mainstream acceptance of cryptocurrency globally.
Ahmed said that following the latest approval in the US, more capital will be allowed to access the crypto ecosystem, and new classes of investors will be able to access capital markets.
This is also likely to ease restrictions on large money managers, financial advisers, and institutions to buy and hold Bitcoin – all of which will improve liquidity and price for market participants, he added.
Moody’s Analytics’ senior director Yiannis Giokas said that spot Bitcoin ETFs could lead to increased demand for Bitcoin, and enhance price discovery and market liquidity.
However, Giokas warned that there are risks which investors need to be aware of.
“The notorious price volatility of Bitcoin, as well as its fluctuating values against stablecoins and other cryptocurrencies, could expose mainstream investors to a less familiar spectrum of investment risks,” he said.
