Bitcoin ETP landscape hots up

Tom Eckett

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The cryptocurrency exchange-traded product (ETP) landscape is hotting up in Europe with more strategies coming to market in recent months, however, the divergence between European regulators is sending mixed signals to retail investors about the viability of digital assets.

Last week, VanEck became the latest ETF issuer to enter the cryptocurrency space with the launch of the VanEck Vectors Bitcoin ETN (VBTC) on the Deutsche Boerse.

This is the third bitcoin ETP launch on the German exchange since regulator BaFin classified digital assets as financial instruments rather like stocks or bonds at the start of this year.

At the time the German regulator said digital assets are “a representation of a value that has not been issued or guaranteed by any central bank or public body and is not necessarily linked to a currency specified by law and that does not have the legal status of a currency or money, but is accepted as a medium of exchange by natural or legal persons and can be transmitted, stored and traded electronically”.

Along with the Deutsche Boerse, the SIX Swiss Exchange has also attracted numerous crypto ETP listings over the past two years.

The SIX Swiss saw the launch of the world’s first crypto ETP, the 21Shares Crypto Basket Index ETP (HODL), on its exchange in November 2018.

With ETP listings in Switzerland and Germany on the rise, investors have slowly started increasing their exposure to bitcoin ETPs.

Highlighting this, ETC Group’s BTCetc Bitcoin Exchange Traded Cryptocurrency (BTCE) passed the $100m assets under management (AUM) mark earlier this month while specialist crypto ETP issuer 21Shares has reached $150m AUM across its 11-strong range.

Institutional investors have also started to increase their exposure to cryptocurrencies amid the low yield environment and increasingly correlated returns of bonds and equities.

MicroStrategy, for example, holds just under $600m assets in cryptos with CEO Michael Saylor stating each public commitment to bitcoin is the next catalyst for more wider adoption.

However, unlike BaFin, the UK’s watchdog, the Financial Conduct Authority (FCA), has taken an extremely negative view on crypto assets.

Last month, the FCA made the decisionto ban the sale of crypto derivatives, including ETNs to retail investors starting from January 2021.

The reason for this, the UK regulator said, is because they are “ill-suited” for retail investors citing price volatility and lack of true value.

Sheldon Mills, interim executive director of strategy and competition at the FCA, said: “This ban reflects how seriously we view the potential harm to retail consumers in these products. Consumer protection is paramount here.”

The divergence between regulators' views across major European markets is sending mixed signals to investors about the crypto landscape.

The volatility in the bitcoin price, as highlighted by its sharp rise to $19,500 in a month and then drop tobelow $17,000 in under a week, leaves manyprofessional investors still scepticalabout the lack of intrinsic value behind the various coins.

As Mark Northway, investment manager at Sparrows Capital, toldETF Stream: “An asset or a risk class does not become investible simply because the market has attached a price to it, because investment is fundamentally about value.

“Without a linkage, however tenuous, to future cash flows or economic production, a risk class is necessarily relegated to the realms of speculation.”

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