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ASIC takes action to protect retail investors from risky crypto funds
In a landmark step for cryptocurrency regulation in Australia, ASIC has cracked down on three “high-risk” crypto funds by preventing them from being offered or distributed to retail clients. The interim stop order is designed to protect mum and dad investors from losing money in funds they may not fully-understand.
“ASIC made the interim orders to protect retail investors from potentially investing in funds that may not be suitable for their financial objectives, situation or needs,” ASIC stated in a release.
The stop order comes just months after the May 2022 crypto crash, when digital assets suffered historic losses, giving back the gains achieved during the previous year’s bull run. Trillions of dollars’ worth of damage was done after Bitcoin experienced one of its most brutal crashes, falling below US$20,000 in June after hitting US$68,000 in 2021. The cryptocurrency is down 52 per cent since its March high this year.
The decline in crypto prices put clear stress on retail investors who made investments near the top of the market. Crypto geeks and speculative investors have suffered an eye-watering $2.2 trillion in crypto losses this year.
Cryptocurrency as an investment
According to the ASIC statement, crypto-based assets are extremely risky.
“Crypto-assets are highly volatile and complex, making concentrated investments in individual crypto-assets very risky and speculative. Investors are likely to experience significant price volatility and deep negative returns in periods of asset price decline,” ASIC noted in its statement.
Kev Toohey, principal financial adviser at Atchison Consultants, spoke to The Inside Investor about cryptocurrency as an investment asset. “Bitcoin does not have any inherent cash flow or income generating properties,” Toohey said. “From an investment asset perspective, Bitcoin therefore has neither an income nor capital valuation above $0.”
“It is noted that successful Bitcoin mining does produce a cashflow – in the form of new currency issuance and transaction fees,” Toohey added. “A business implementing Bitcoin mining (as opposed to passively owning a Bitcoin), should be classed as an Equity Investment Asset.”
“Ethereum on the other hand allows passive holders to pledge its coins into a bond like structure that incentivises validation of the Blockchain network and pays a cash-flow.”
Toohey issued a similar warning to ASIC chair Joe Longo, cautioning retail investors on the highly volatile nature of crypto-assets, making it difficult to consider them as an investment asset.
“Despite the recent incredible price surges of cryptocurrencies, the speculative nature of the asset class makes long-term fundamentally based investment difficult. Bitcoin itself is judged to be a collectable asset not a currency. Given the relative abundance in collectable terms, the current valuation is not supported,” Longo said.
The three funds which interim stop orders placed are:
- Holon Bitcoin Fund ARSN 659 090 294
- Holon Ethereum Fund ARSN 659 090 516, and
- Holon Filecoin Fund ARSN 659 090 614
The order is valid for 21 days unless revoked earlier.
