What are the main crypto asset-based products?

2020 saw the rise of cryptocurrency exchange traded products with assets rising to record levels. The ETP market exploded beyond $4 billion in total assets this year due to public awareness, regulatory easing, and celebrity promotion boosting prices. Learn about crypto asset products in this article.
Key takeaways:

 

  • Crypto ETP exist on the swiss exchange and crypto ETF are much newer products.

  • Bitcoin ETP or Ethereum ETP are products that focus on that specific crypto.

  • Multi asset ETP diversify away from a unique crypto towards multiple cryptos.

  • Blockchain is the underlying technology behind cryptos and can serve as a crypto investment pathway.

  • Bitcoin mining firms are a great way of gaining exposure to bitcoin.

  • The Canadians launch the first Bitcoin ETF called BTCC.

 


 



Multi-crypto and bitcoin exchange traded products (ETP)
FlowBank has a great article focusing on Crypto ETP sold on the Swiss Stock Exchange, here. The Swiss are pioneers of crypto ETP and offered the first one in 2018. Amun Crypto Basket ETP was designed to track an index based on the movement of five leading cryptos:, this is called a multi-crypto ETP (further explained below). The group’s name was later changed to 21shares. FlowOne allows you to invest and trade such ETP.

Cryptocurrency ETP invest in popular cryptocurrencies like Bitcoin, Ripple or Ethereum. The ETP are physically backed, meaning that settlement is done in the underlying asset rather than cash like regular stocks. Cryptos offer many advantages. Even though they are volatile and still becoming integrated into the financial system they provide an asset class separate from the financial system and thus serve as a new way to diversify holdings away from cash and gold. The risk involved remains high, which is the raison d’etre of crypto ETP. These securities offer exposure to cryptos without concerns of custody or directly owning the crypto yourself.

The risk and return tradeoff is straight forward. Cryptos are very volatile which means you can make a lot of money or lose it all if your exposure is too great (like when you buy from Coinbase or River as an amateur trader). Direct investors will face operational concerns of storing (custody) the assets whereas with an ETP, you let the pros handle the heat. The active management style of the ETP will grant you access to a greater spread on regular market index returns and with it higher fees.

A multi-crypto ETP is the same framework as described above with the underlying asset including multiple cryptocurrencies like Ripple and Ethereum. Multi-asset crypto ETP increase diversification and thus diminish risk. The first of its kind was launched by 21shares and has soared as of late:





Blockchain and bitcoin mining companies...If you are building out a crypto-based portfolio or want to invest in other sorts of crypto asset products, you should not overlook the very companies that have deployed capital to monopolize on mining. Go ahead and read this article on the very companies that drive the mining space, such as RIOT, MARA, ARB, and HIVE. The argument for investing in these firms is that they mine a lot of coins, hold on to them, and as prices rise, so do their balance sheets. Some of these firms have hockey sticked in the past year like MARA:



Blockchain is the underlying technology behind the bitcoin and cryptocurrency trend, without it there is no bitcoin. If there is anything to focus on it should really be blockchain. As an investor one should become aware of this new technology now and begin a rigorous due diligence on companies like GMO Internet, Advanced Micro devices, Micron technology, Argo, Nvidia, Overstock, Silvergate Capital, Square and PayPal. The main reason for this urgency is that we are still in the early stages of a major revolution, imagine Apple computers in the 80s. Industries will no longer be the same as blockchain will disrupt supply chains, communication, banking, healthcare, and security services.

 


Bitcoin ETF ''firsts''...

BTCC is a pure play bitcoin ETF. It is a traded security for registered Canadian investors launched February 17th by Purpose Investments. It is the first of its kind. Why did Canadian regulators accept the bid? Infrastructure was not working out back in 2017 but a lot has changed in terms of ETF crypto plumbing. Custodians are regulated now, futures market are blossoming, and market makers can directly trade into the crypto market. Key hurdles like the acceptance of the bitcoin asset class is now over.

How is BTCC working mechanically speaking? It is backed by real bitcoin, no notes, no futures. It is a cold wallet custody solution, so you do not have to store BTC in hot wallets which are at greater risk of major hacking. How do you get asset fluidity? By working with broker-dealers. Digital asset settles instantly, while securities markets settle in t+1 which the fund’s tech group will manage internally. An average investor does not want to necessarily open an account on Coinbase and deal with plumbing so let the Canadians handle it. In the US, the SEC will not accept bitcoin ETF until issues around market manipulations around prices and custody and wallets getting stolen get resolved. The Canadian ETF could lay the groundwork on a US plumbing ETF option.

BLOK ETF crossed over $1B this week, 8th best performing ETF right now and focuses on Blockchain groups. Amplify’s CEO Magoon launched it in 2018 and the universe of firms has increased since then. Many pure play options here. MicroStrategy, Canaan, Riot, Argo, Marathon. The 1-year return has been 190%. A portfolio with more than 40 holdings, in things like custodial, mining, transactional system, storage, settlement or digital wallets offers investors a world to dive into comfortably.

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