Today, cryptocurrency ETPs (Exchange Traded Products) are one of the most popular ways for institutional investors to access crypto. Popular financial institutions such as UBS, JPMorgan and Goldman Sachs have previously purchased ETPs for clients. Much of the interest in crypto ETPs is driven by Bitcoin’s successes in the market. With BlackRock’s recent announcement regarding BTC filing, we are seeing an increase in the number of issuers launching crypto ETPs in Europe.
What Are Crypto ETPs?
Crypto ETPs are investments tied to crypto assets. This way, investors can carry out crypto investments without actually owning digital assets. For instance, a Bitcoin ETP can allow investors to invest in BTC without directly holding the asset. Rather, they purchase shares linked to the asset’s market price. Crypto ETPs invest in the most popular digital assets, especially Ripple, Bitcoin Cash, Litecoin and Ethereum. ETPs are physically backed, meaning settlement is in the underlying digital asset rather than a cash equivalent.
Why Do Investors Favour Crypto ETPs?
Cryptocurrency is a highly volatile asset, with many risk-averse investors preferring to steer clear in favour of stocks and bonds. Additionally, many still see crypto as highly unregulated and rife with potential fraud. Nevertheless, cryptocurrencies remain an excellent alternative for portfolio diversification, as macroeconomic fortunes do not drive its market. This is where crypto ETPs come in, as these securities provide crypto market exposure minus the concerns of custody and the risks involved. With crypto ETP investments, investors can benefit from institutional-class custody and trade effectively.
ETPs in Europe
In Europe, the European Securities and Market Authority gives and regulates all securities transactions, including crypto ETPs. However, the investments may also be subject to further regulation locally. For instance, the Swiss Stock Exchange has unique rules governing securities investment. In recent times, crypto ETP inflows have increased in Europe. In other words, the amount of coins deposited into exchange wallets have significantly increased.
Blackrock Refiles for Bitcoin ETP
BlackRock is one of the world’s leading investment, advisory and risk management solutions providers. Sequel to reports that the Securities Exchange Committee discovered flaws in their initial filing, BlackRock submitted fresh applications for a BTC spot market ETP. If successful, it will be the first-ever approved BTC spot ETP. The company plans to conclude a surveillance agreement with Coinbase to address one of the primary objections the SEC has raised with previous BTC spot ETP application rejections. BlackRock’s proposed ETP will rely on the Coinbase crypto exchange as its custodian and for its spot market data for pricing.
European Crypto ETP Inflows Rise
Shortly after the news that BlackRock was filing for the ETP, Bitcoin’s prices surged. Since the news broke, BTC’s price has increased by around 20%. Subsequently, cryptocurrency ETPs around Europe witnessed a significant net inflow increase, totalling €150 million in June. The surge followed a reversal of trends, with May witnessing outflows of up to €100 million. Interestingly, this pattern extends outside Europe, with a total inflow of €560 million in July and June. BlackRock’s plan to create a BTC ETP boosts investor confidence and is a precedent for increased investments in the digital asset.
Several asset managers have followed BlackRock’s lead, with companies like Valkyrie, Invesco and WisdomTree replying after previously rejected filings. As the rest of the crypto world awaits news of the filing approval, crypto ETPs are poised to grow remarkably in the coming years, backed by proxy-style investors. Next, there will be another interesting topic – bitcoin.
Frequently Asked Questions
What Is a Crypto ETP?
Crypto ETPs are an investment vehicle that is backed by cryptocurrencies. Examples of crypto ETPs include the 21Shares Bitcoin (ABTC) and the Fidelity Physical Bitcoin (FBTC). Crypto ETPs are unique forms of crypto investments as they allow investors to enjoy the rewards of the cryptocurrency market without directly holding the tokens. This eliminates much of the risk and debate surrounding cryptocurrency investment and is an opportunity for investors keen on diversifying their portfolios.
What Is the Difference Between ETFs and ETPs?
ETPs are the broader investment vehicles that track the performance of underlying benchmarks or assets such as gold or cryptocurrency. Certain ETPs afford investors cost-effective diversification, while others do not. On the other hand, ETFs are a type of ETP that includes pooled investment opportunities such as stocks, bonds and other assets categorised based on specific fund goals.
Will BTC Price Go Up?
Bitcoin price has rallied since news of BlackRock’s Bitcoin filing filtered to the public, rising by at least 20%. News of an impending spot-traded crypto ETP supported by Coinbase has excited institutional investors, and there is hope for more positive ETP inflows in Europe and worldwide. However, as BTC is an inherently volatile asset, there is no telling its price trajectory in the short and long term.
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