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With the US Bitcoin ETF in jeopardy, cryptocurrency exchange-traded products are all the rage in Europe

Institutional investors are interested in the products, which must meet strict compliance standards.

  • While US investors await a physically-backed ETF, exchange-traded funds (ETFs) are king in Europe.
  • According to issuers, the ETP structure is frequently the only option that meets regulatory requirements.

With the prospect of a physical bitcoin ETF dead in the water in the United States, a crowded market for cryptocurrency exchange-traded products (ETPs) in Europe is heating up with a slew of new listings.

According to various media sources, digital asset-linked ETPs in Europe surpassed $1 billion in inflows in 2020, with demand showing no signs of slowing. According to CoinShares data, more than $80 million was invested in European crypto investment products in the week ending February 11.

According to the issuers, the interest is unsurprising. The security and convenience of crypto exposures through a regulated product are appealing to retail investors and are frequently required by institutional players.

“A lot of investors don’t want to open wallets on exchanges or deal with crypto in any other way.” “They would much rather use traditional access rails of their brokerage accounts,” said Townsend Lansing, CoinShares’ head of product. “As opposed to a direct investment in, say, bitcoin, this is primarily driving demand for these.”

With the launch of its Fidelity Physical Bitcoin ETP (FBTC) on Germany’s Deutsche Börse Xetra earlier this month, Fidelity International became the latest issuer to offer a European ETP. In recent weeks, 21Shares, the world’s largest ETP issuer, introduced three new decentralized finance (DeFi) products to European markets.

CoinShares, based in Jersey, has a number of products trading on European exchanges, including two new ones focused on staking opportunities. Other issuers with products in the European markets include Invesco and Wisdom Tree.

The setup could be advantageous for institutions with stringent cryptocurrency compliance rules.

“Institutions have well-established access rails,” Lansing said. “They have risk committees, lawyers, compliance, and they understand how the securities markets work.” I believe that institutional investors, ranging from private banks to multi-asset mutual funds, will benefit greatly from their familiarity with how the exposure is wrapped.”

In addition, the ETP wrapper is frequently the only way for issuers to list on European exchanges.

“Having an ETF on a single asset is often against the rules in Europe,” said Hany Rashwan, CEO of 21Shares. “They are classified as either exchange-traded commodities or exchange-traded products in Europe.”

According to Rashwan, the classification around naming these types of investment vehicles is less important than how the products are structured.

“What investors are looking for in the end is physically-backed access to crypto in vehicles and wrappers that make the most sense for that,” Rashwan explained.

All of 21Shares’ ETPs traded in Europe are physically backed, allowing the products to track the price of the underlying assets more closely, he added.

In the United States, bitcoin futures-based ETFs and exchange-traded trusts, such as the Grayscale Bitcoin Trust (GBTC), are frequently chastised for tracking the underlying asset’s price inexactly. GBTC frequently trades at a discount or premium to bitcoin, whereas futures-based ETFs are subject to roll costs.

Disclaimer: These are the writer’s opinions and should not be considered investment advice. Readers should do their own research.

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