ETFs, ETNs, ETPs: how can they help me invest in cryptocurrency?

You have maybe heard of ETFs, ETNs and ETPs; but what are these financial instruments, and how can they be used to gain exposure to assets like cryptocurrencies? Here are some answers.

What is an ETF (Exchange-traded fund)?

ETFs, or Exchange-traded funds, are baskets of stocks and/or bonds. It trades like a single security on the exchange it is listed on, meaning that its price can fluctuate on a daily basis, and that the investor can decide to buy or sell at any time.

Often, ETFs are set up to track an index fund, for example the S&P 500 or the Nasdaq, but they can be designed to track just about anything, such as a currency, a commodity, a specific industry or follow a tailored investment strategy. Thus, we have bonds ETFs, Industry ETFs, Currency ETFs, and many other types of ETFs depending on their holdings and the strategy they wish to adopt. One last advantage is that it already offers a certain degree of diversification, given that, by definition, it tracks a basket and not a single security.

 

What is an ETN (Exchange-traded notes)?

ETNs, or Exchange-traded notes are similar to bonds, apart from the fact that they do not have interest payments. They are intended to track the return of a related asset or index. Their prices also fluctuate like stocks.

Unlike bonds though, an ETN will not pay regular interests. Instead, it will pay return of the index or asset it tracks at a maturity date. Unlike ETFs, ETNs do not grant ownerships of the securities they track, only rights to the returns they produce, minus expenses.

Lastly, unlike ETFs which are considered as investment funds, ETNs are an unsecured debt, meaning that the issuer – usually a bank – can potentially not be able to repay the principal and default the bond.

 

What is an ETP (Exchange-traded product)?

An Exchange-trade product is a type of security that tracks other securities, an index or other financial instruments. It can be traded on markets like stocks, meaning that their price can change on a day-to-day basis.

Their main advantage is that they offer a low-cost alternative to actively managed mutual funds, benefit from high liquidity and open trading possibilities on many different types of asset classes, such as stocks, bonds, commodities, fiat currencies, cryptocurrencies. One last advantage is that it already offers a certain degree of diversification.

Like ETNs, ETPs do not grant ownership of the underlying assets. The main difference is that it usually holds collateral assets in a trust for investors.

 

Here is a table summary of the different security types mentioned above with their characteristics:

Security Type

Exchange Traded product (ETP)

Exchange Traded Note (ETN)

Exchange Traded Fund (ETF)

What is it?

Collateralized, non-interest-paying debt securities

Unsecured debt obligations of financial institutions that usually do not bear interest

Marketable security; much like stocks

What is it used for?

Replicate performance of an underlying asset, such as stocks, bonds, or commodities on an unchanged or leveraged basis

Replicate performance of an underlying asset, such as stocks, bonds, or commodities on an unchanged or leveraged basis

Tracks the price of assets like baskets of stocks, bonds or commodities

Ownership of underlying asset

No;

It’s debt that promises a return to the investor linked to the performance of the asset it tracks;

The collateral assets of an ETP are usually held in an independent trust for the investors

No;

It’s debt that promises a return to the investor linked to the performance of the asset it tracks

 

Yes;

The assets of an ETF are usually held in trust for the fund’s investor

 

Example with the different alternatives to trade crypto with Flowbank

To illustrate the differences between these instruments, we will show you how you can invest in Bitcoin with Flowbank in many ways. Note that we are taking Bitcoin as an example, but Flowbank offers other products tracking other cryptocurrencies such as Ethereum, Ripple, Binance Coin, Cardano, Polkadot and many others.

 

CI Galaxy Bitcoin ETF

CI Galaxy Bitcoin ETF is the Bitcoin ETF with the world’s lowest management fees. The ETF holds only Bitcoin. It is an instrument made for investor who are looking for exposure to bitcoins without having to acquire them themselves, nor having to take care of the trading part. In addition, Bitcoin is not always easily accessible if one does not have a crypto wallet, such an instrument opens bitcoin investment to any trading account.

 

Van Eck Bitcoin ETN

The Van Eck Bitcoin ETN is a fully collateralized exchange-traded note that invest only in Bitcoins. Note that not all ETNs are collateralized, making this ETN particularly safe compared to others. The note aims to replicate the performance of the MVIS CryptoCompare Bitcoin VWAP Close Index (MVBTCV Index). It also provides an easy access to Bitcoin. Remember though, that interests will be paid at the maturity date, unlike regular coupon bonds.

 

21Shares Bitcoin ETP

The 21Shares Bitcoin ETP works in a similar manner, except that the debt is collateralized, meaning that it is 100% backed by assets (here, Bitcoins) held in an independent trust for investors. It is also an easy and secure way to get exposure to Bitcoin from a regular trading account.

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