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What are cryptocurrency ETPs?

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Education corner / Investing / What are cryptocurrency ETPs?


Cryptocurrency ETPs are investment vehicles that provide exposure to either a specific cryptocurrency – like bitcoin – or exposure to a basket of crypto assets.  

They track the performance of a cryptocurrency or baskets of cryptocurrencies, similar to how other ETPs track indices or commodities. 

Crypto ETPs mirror the performance of its underlying assets – it rises with asset growth and falls when the assets decline. 

Benefits of crypto ETPs

These ETPs are traded on stock exchanges, which provides a regulated way to invest in digital currencies without dealing with cryptocurrency exchanges or digital wallet storage complexities. 

Investors can buy and sell crypto ETPs during trading hours through a traditional brokerage account, enjoying the liquidity and transparency that come with stock exchange trading.  

There are no cryptocurrency UCITS ETFs in Europe as the Central Bank of Ireland has not allowed crypto assets to be included in within the framework. 

To get around this regulatory hurdle, cryptocurrency ETPs are structured as a secured debt instrument rather than a fund – similar to exchange-traded notes (ETNs). 

Single-asset ETPs track a specific cryptocurrency, like bitcoin or ethereum, providing a straightforward way to mirror the asset's market performance. 

Crypto basket ETPs allow investment in multiple cryptos at once, offering exposure to various themes and risk diversification. 

How ETPs generate returns

Crypto ETPs can generate additional returns by either lending or staking their underlying assets. 

Lending allows cryptocurrency holders to lend popular cryptocurrencies – like bitcoin – to borrowers in order to generate yield. 

In other words, cryptocurrencies are lent to borrowers in return for regular interest payments. 

Staking involves locking the crypto assets for a set period of time to help support the operation of a blockchain. In return for staking their crypto, they earn more cryptocurrency. 

Staking is only available on newer cryptocurrencies that develop their blockchains via ‘proof-of-stake’ versus the ‘proof-of-work’ system used by bitcoin. 

Risks of crypto ETPs

Cryptocurrency ETPs carry their own set of risks. Digital assets are volatile by nature and can be subject to huge price fluctuations.  

This is because cryptocurrencies, namely bitcoin, are influenced by supply and demand, investor sentiment, government regulations and media hype.   

Moreover, while these products offer a level of insulation from the operational risks of holding cryptocurrencies directly, they are not immune to the broader market risks that impact the cryptocurrency sector such as being more susceptible to market manipulation. 

Final word

Cryptocurrency ETPs offer European investors a regulated way to gain exposure to cryptocurrencies, with many now seeing the asset class as part of the investment mainstream. 

Key takeaways

  • ETPs offer a regulated way for European investors to gain exposure to cryptocurrencies, bypassing the complexities of cryptocurrency exchanges and digital wallets

  • ETPs come in single-asset and basket options, allowing for targeted or diversified investment. They can also generate additional returns through lending or staking the underlying crypto assets.

  • Despite the benefits, crypto ETPs are subject to the inherent volatility of cryptocurrencies and broader market risks like manipulation, making them a potentially risky investment

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