Fidelity became the most recent US giant to enter the European crypto exchange-traded product (ETP) market this week, perhaps marking a wider turning point for the asset class.
The arrival of the Fidelity Physical Bitcoin ETP (FBTC) on the Deutsche Boerse, Frankfurt Stock Exchange and soon the SIX Swiss Exchange followed the launch of its sister product, the Fidelity Advantage Bitcoin ETF (FBTC), on the Toronto Stock Exchange in December last year.
This, in turn, followed the debut of the Invesco Physical Bitcoin ETP (BITC) on the Deutsche Boerse just a month earlier.
Interestingly, both European products are the result of partnerships with some other major players. For instance, Brown Brothers Harriman is acting as administrator and transfer agent for FBTC while BTIC’s custody is handled by Zodia, a regulated firm invested in by the likes of Standard Chartered and Northern Trust – the latter of which also acts as BTIC’s administrator.
Involvement in crypto by this number of large, established actors – rather than start-up issuers – evidences a maturing and ultimately more mainstream side of an asset class that has spent more than a decade on the fringes of investment.
Also worth noting is although even large players can be guilty of rushing fee-grabbing products to market, this has not been the case with the products mentioned above.
Speaking to ETF Stream, Invesco’s head of EMEA ETFs and indexed strategies Gary Buxton said work began back in 2018 to build a bitcoin product for professional investors. Over the course of more than three years, the firm had to reconcile concerns surrounding custody, segregation, valuation and creating a structure that was suitable for institutional investment.
In the end, the team behind BTIC, as with Fidelity’s FBTC, opted for a physical replication methodology – viewing it as a more “observable” marketplace and one with suitable depth of liquidity.
With other long-time ETF houses such as VanEck and WisdomTree already in the market, the next step will be to see if others such as State Street Global Advisors (SSGA) and UBS Asset Management follow suit and whether such entries prompt sceptical regulators in the UK and US to ease their stances.
In a scenario where large asset managers have bitcoin spot funds across various jurisdictions, the asset class’s usership and volatility may look unrecognisable versus the pre-pandemic era.
Some month for authorised participants
Other recent news revealed liquidity providers in Europe are going through a period of turbulence. Last month, Bluefin Europe unceremoniously shut down on the instruction of its US headquarters despite recent hires.
Bluefin’s departure after 15 years in Europe prompted concerns about the dominance of two market makers – Jane Street and Flow Traders – to resurface. However, Flow Traders has had its own issues of late, after Bloomberg revealed its top UK executive Christopher Meyers was sacked last November for alleged “unprofessional behaviour” towards female staff from key business partner BlackRock at a pub in London.
The ESG-ing of all things is not a linear process
Continuing the trend of adding ESG metrics to existing products, VanEck is set to add screens to its semiconductor and hydrogen thematic ETFs. These will screen out companies with “severe social norms violations”, those involved in controversial weapons, those deriving significant revenue from tobacco, gambling, military equipment and energy extraction and those not covered by ISS data.
Likewise, DWS tightened the exclusions methodology on three corporate bond ESG ETFs. Those with low or red flag ratings and significant revenues or associations with weapons, oil and gas, thermal coal and fossil fuel reserves were already excluded.
However, in a significant kickback, BlackRock’s plans to switch five sector ETFs to ESG indices came unstuck when the changes did not receive the necessary support on two of the products. Effectively, not enough investors turned up to vote on the proposal highlighting the appetite to change everything to ESG may not be as strong in the investor camp.
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