Exclusive to Australia: An Ethereum ETF That Dodges Capital Gains Tax—Too Good to Be True?

• Monochrome Asset Management launches Australia’s first Ethereum ETF, set to begin trading on Cboe this Tuesday.
• IETH distinguishes itself by avoiding capital gains tax events through beneficial ownership retained by the investor.

Monochrome Asset Management is set to introduce Australia’s first spot Ethereum exchange-traded fund (ETF), slated to start trading on the Cboe exchange at 10 AM AEDT this Tuesday. This launch follows their earlier Bitcoin ETF (IBTC), which debuted in August 2023. The new Ethereum ETF , dubbed IETH, is crafted to appeal especially to long-term investors by offering tax efficiencies not commonly found in its American counterparts.

Monochrome hosted a private event in Sydney this week with our service providers, team, and partners to mark the upcoming launch of the Monochrome Ethereum ETF (Ticker: IETH). #Ethereum #ETF $IETH pic.twitter.com/VAPOgZcPGr

— Monochrome (@MonochromeAsset) October 10, 2024

Jeff Yew, CEO of Monochrome, highlighted a key aspect of the ETF: its in-kind subscription and redemption mechanism. This approach allows the ETF to manage capital gains tax (CGT) events differently by maintaining the beneficial ownership of Ethereum with the investor, even as it is transferred into the fund.

“US crypto ETFs can’t be supported in kind, including Bitcoin ETFs, and they are not operated in this timezone,” Yew said.

The structure is designed to prevent the realization of CGT events, facilitating smoother transitions for those looking to move large sums into the ETF without immediate tax repercussions.

Distinct from U.S. crypto ETFs , IETH offers direct entitlement to Ethereum, meaning the actions taken by the trustee are considered as if performed by the investors themselves. This avoids the triggering of CGT events during transfers or redemptions, an advantage touted by Yew. He contrasts this with U.S. ETFs, which do not support in-kind contributions and operate across different time zones, potentially complicating transactions for international investors.

Despite its innovative structure, Monochrome does not expect its Ethereum ETF to rival the massive inflows seen in U.S.-based ETFs, which were approved earlier this year and have attracted substantial investments.

However, IETH aims to carve out a niche by aligning closely with the interests and needs of Australian investors. It is benchmarked against the CME CF Ether-Dollar Reference Rate – Asia Pacific Variant and offers a competitive management fee of 0.50%, reduced to 0.21% for accredited advisors.

While Monochrome’s offering may not capture the vast volumes of its U.S. counterparts, the firm is optimistic about the growing interest from the Australian market. By focusing on tax efficiencies and investor-centric features, IETH is poised to offer a unique and appealing option for those looking to invest in Ethereum through a regulated, traditional financial instrument.