After receiving a cold response from investors upon launch, cryptocurrency fund manager Cosmos Asset Management has decided to withdraw its much-hyped exchange-traded funds from the local stock market.
An equity fund invested in bitcoin miners was listed by the North Sydney-based Cosmos, which is run by former BlackRock and BetaShares executive Dan Annan, in September of last year.
The Cboe Australia exchange (previously Chi-X) was informed on Wednesday by K2 Asset Management, the company in charge of Cosmos’ locally listed bitcoin and ethereum ETFs, of the company’s plan to request “de-quotation” of these funds. Cosmos also submitted a request to delist its cryptocurrency miners ETF, DIGA. Bringing the total amount of money taken out to about $1.6 million.
In May of this year, it was followed by the Cboe debut of bitcoin and ethereum ETFs, both of which served as feeder funds for Purpose Investments’ Toronto-listed ETFs.
However, they also occurred at the same time as the algorithmic stablecoin Terra’s demise, which provoked a global sell-off in cryptocurrency markets, shook investor confidence in the fledgling industry, and prompted stockbrokers to halt trade.
The listings were significant because they coincided with those made by rival ETF Securities (now Global X Australia), and they marked the first cryptocurrency-related funds to be listed on an Australian stock exchange. It came after a protracted scramble to win market and regulatory approvals for the ground-breaking products.
The Cosmos Purpose Bitcoin Access ETF had approximately $850,000 in assets under management as of its September filing, while the Cosmos Purpose Ethereum Access ETF had approximately $232,000 in assets. There were around $632,000 in the Cosmos Global Digital Miners Access ETF, which has One Investments acting as RE.
While Mr. Annan stated in a statement that Cosmos still had faith in the cryptocurrency markets and that investor funds were protected, the company declined to comment on the reasons for the delisting.
We are all dissatisfied with this outcome, even if we have a great belief in the asset class, Mr. Annan remarked. A crucial transparent risk reduction framework across all asset classes is the ring-fencing of the ETFs by independent external service providers. In the interests of the process, we’ll keep up with it. According to sources close to the company, it had difficulty attracting enough investors to pay for the substantial expenses of operating the crypto ETFs, such as the unusual and pricey professional indemnity insurance arrangements required.
Mawson Infrastructure, a Nasdaq-listed company that owns Cosmos, wrote down the value of that company’s local funds management venture in August. Mawson Infrastructure is an Australian bitcoin miner. Mawson revealed that during the six months ending June 30, 2022, it had experienced an impairment of $US1.1 million related to its Cosmos subsidiary in a filing with the US Securities and Exchange Commission. It is understood Mawson subsequently transferred ownership of the asset, which was no longer material, to a third party.
Mawson chief executive James Manning said the decision to sell Cosmos was motivated by a desire to refocus on its core bitcoin mining and infrastructure operations. “We recognise that ETFs are a scale business and a long game,” Mr Manning told The Australian Financial Review. “We didn’t want to be in that long game and it made sense for us to exit.” Mr Annan declined to comment on the transaction.
Mawson operates bitcoin mining facilities in Texas, Georgia and Pennsylvania in the US, as well as the far north coast of NSW. It listed on the Nasdaq in September 2021 at $US11.50 a share, but that has since slid to US44¢ as it and others wait out the crypto market downturn. Its stock was among the portfolio holdings of Cosmos’ DIGA fund. Meanwhile, the corporate regulator has upped its scrutiny of crypto funds marketed to retail investors. Earlier this month, investment manager Holon’s three crypto funds were suspended from raising new assets for 21 days because its target market determinations were incomplete.
Early investors in Cosmos’ bitcoin and ethereum ETFs lost money, but a strong US dollar has helped as investment is unhedged in currency terms. Cosmos’ bitcoin ETF is down 25 per cent since its May 12 inception date while the ethereum ETF is down 9 per cent, compared with an 18 per cent decline in the underlying ethereum asset in US dollar terms.
- Cosmos will delist Cosmos Global Digital Miners Access, Cosmos Purpose Ethereum Access, and Cosmos Purpose Bitcoin Access
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