CBTC FAQ- What You Need to Know

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Why CBTC is an appealing way to gain exposure to Bitcoin

The Cosmos-Purpose Bitcoin Access ETF will gain exposure to the price movements of Bitcoin through the world’s first spot Bitcoin ETF—the Purpose Bitcoin ETF, which is listed on the Toronto Stock Exchange.

The Purpose Bitcoin ETF utilises institutional-grade liquidity providers, including Genesis, to help buy Bitcoin at the best possible price for investors. Purpose Investments does not use retail cryptocurrency exchanges to make Bitcoin purchases to ensure transactions are as secure as possible.

Where is Bitcoin custodied?

Bitcoin assets in the Purpose Bitcoin ETF are safely held by one of the largest cryptocurrency custodians, Gemini Trust Company, a licensed New York State trust company that undergoes regular bank exams and cybersecurity audits. Day-to-day, Bitcoin in the Purpose Bitcoin ETF is held in a secure, offline wallet, which is disconnected from the internet, significantly reducing the risk of theft.

Is the Bitcoin held in “hot” or “cold” storage?

The Bitcoin (in the Purpose Bitcoin ETF) is held in secure, offline storage (also known as “cold” storage) because it is not actively connected to the internet. The Purpose Bitcoin ETF does not use an online or “hot” wallet, only for transitory purchases when it is buying and selling Bitcoin. The Purpose Bitcoin ETF only invests in and holds 100% physically settled Bitcoin.

Is the Bitcoin in the Purpose Bitcoin ETF safe? What about if it gets hacked?

Neither we nor Purpose can guarantee there is no risk. However, Purpose has taken every reasonable precaution possible to ensure the assets in the Purpose Bitcoin ETF are safely held. There have been multiple instances of Bitcoin being “hacked.” These stories are true but typically happen with unregulated exchanges that lack proper controls. Gemini (the custodian for the Purpose Bitcoin ETF) has insured its assets for up to USD 200 million against theft.

What price is used to calculate the net asset value (NAV) of CBTC?

CBTC uses the official NAV of the Purpose Bitcoin ETF to calculate its NAV, and the Purpose Bitcoin ETF uses the Tradeblock XBX Index to calculate its Net Asset Value.

What is currency risk?

When buying units in an Australian-listed ETF that holds assets in a different currency, an investor takes on currency risk. This risk can either help or hurt performance, depending on whether the Australian dollar strengthens or weakens against the foreign currency.

Why is CBTC down and Bitcoin up?

The price of Bitcoin is often quoted in US dollar terms, both in the media and on websites. Since units in CBTC will be purchased in Australian dollars, investors in CBTC should monitor the Australian dollar Bitcoin price pairing to exclude US dollar currency impacts.

Why CBTC is an appealing way to gain exposure to Bitcoin

Do you hold actual Bitcoin, or is it a synthetic exposure, like a derivative or futures contract?

Cboe: CBTC will gain exposure to the price movements of Bitcoin by investing in the world’s first spot Bitcoin ETF—the Purpose Bitcoin ETF, with a proven track record.
The Purpose Bitcoin ETF only invests in and holds 100% physically settled Bitcoin.

Why does it matter if I own “real” Bitcoin, why not just buy a derivative (i.e., futures)?

Futures contracts have a finite lifespan. That means the fund manager must sell expiring contracts and re-buy the contracts at a later date. This process creates a gain or loss. In a normalised market, the futures curve is upward sloping, meaning you are selling low and buying high to maintain the same exposure to Bitcoin. By indirectly having an exposure to Bitcoin price movements, an investor does not need to worry about losses associated with continuously selling and re-buying futures contracts.

Why should I use Cboe: CBTC instead of using a cryptocurrency-specific account/brokerage?

There are three core advantages to a Bitcoin ETF (a regulated financial product) over a Bitcoin marketplace:

  • Ease: There are several steps to purchasing Bitcoin through a digital currency exchange. When you buy units in an ETF, you do not have to worry about custody, security, or other issues.
  • Regulation: Currently, digital currency exchanges are much less regulated relative to security exchanges. Investors that purchase Bitcoin directly through a digital currency exchange need to take additional steps to protect their digital assets from cybersecurity and theft, like using their own cold wallet.
  • Execution: Individual marketplaces have been known to have pricing issues relative to other marketplaces. By using a proprietary index methodology from Purpose’s partners at TradeBlock, the Purpose Bitcoin ETF minimises pricing anomalies that have been documented at individual marketplaces.

Why an ETF instead of listed-investment-trust (LIT)?

An ETF like CBTC provides efficient exposure to Bitcoin price movements, and the structure, we believe, better reflects what investors are looking for – to track the price of Bitcoin. Unlike ETFs, LIT’s cannot quickly add or remove units to maintain consistent exposure. This means that LIT’s may trade at a premium or a discount, depending on the amount of demand. In a Bitcoin fund trading at a premium, investors may incur losses from a decline in the price of Bitcoin and the premium being compressed. An ETF a robust creation and redemption process that allows exposure to expand and contract as necessary to accommodate demand.

Bitcoin trades 24 hours, does CBTC also?

Cboe: CTBC is available for trading during normal trading market hours of the Cboe Exchange, 10:00AM – 4:00PM AEST, Monday – Friday (excluding Australian holidays).
Authorised Participants and Market Makers within the ETF ecosystem are in place to ensure orderly pricing during trading hours, subject to the exchange market making spread requirements.

What times in the day can you buy units in CBTC?

Once launched, Cboe: CBTC can be bought (and sold) anytime throughout the normal trading market hours of the Cboe Exchange. We recommend using limit orders for trading ETFs and avoiding purchases near market open (10:00AM AEST) and close (4:00PM AEST).

Important Notices 

This document has been prepared by Cosmos Asset Management Pty Ltd (ABN 34 639 356 068; CAR No. 1281643) and it is the investment manager of the Cosmos-Purpose Bitcoin Access ETF, ARSN 640 781 693 (CBTC). 

The responsible entity and issuer of the CBTC is K2 Asset Management Limited (ABN 95 085 445 094) (AFS Licence No 244393) (K2), a wholly owned subsidiary of K2 Asset Management Holdings Limited. 

CBTC has been registered by the Australian Securities and Investments Commission (ASIC) and the units in CPET are quoted for trading on Cboe Australia exchange. K2 has a Replacement Product Disclosure Statement dated 27 April 2022(PDS) for CBTC with ASIC, a copy of which is available under “Documents” at https://cosmosam.com.au/cbtc. K2 has made a Target Market Determination (TMD), which describes the class of consumers that comprises the target market for units in CBTC. A copy of the TMD is also available under “Documents” at cosmosam.com.au/cbtc. Investors should consider the PDS and the TMD before deciding whether to invest in CBTC or continue to hold units in CBTC. The material in this document is general information only and does not take into account your individual objectives, financial situation or needs and you should consider whether it is appropriate for you. You should seek professional advice and consider the product disclosure document and target market determination, available at https://cosmosam.com.au/cbtc, before deciding whether to acquire or continue to hold units in CBTC. This material should not be considered a solicitation to buy or sell a security. An investment in cryptocurrencies or associated exposures should be considered highly risky. Digital currency investments present high daily return volatility. Investors should consult financial professionals to assess their level of risk appetite before making an investment into CBTC. 

 

For more information on CBTC’s risk disclosures please review the PDS and TMD available at https://cosmosam.com.au/cbtc 

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Author: Chris Hayes