Exchange-traded cryptocurrency products (ETPs) have become a popular investment vehicle for institutional investors. These can track the price of a particular cryptocurrency and is fully backed physically by the asset’s respective blockchain, this option gives investors transparency and security in the crypto market
Now, recent reports reveal that Crypto asset manager CoinShares is launching a new physically-backed bitcoin exchange-traded product. Dubbed the CoinShares Physical Bitcoin (BITC), it will be listed on Switzerland’s principal stock exchange SIX, on January 19. Every BITC product will be backed by 0.001 bitcoin.
These ETPs are settled like regular shares. They basically are an indirect investment option that mirrors the original asset. As of now, the firm’s other Bitcoin products are synthetically structured. CoinShares’ head of product Townsend Lansing explained:
“It means they are not 100% physically backed. They hold at least 75% of the exposure in physical bitcoin, and the remaining 25% can be used to get bitcoin futures or cash for liquidity purposes.”
As such, physically-backed ETP minimizes credit risk, while with a synthetic ETP, “there’s always some element of credit risk because you effectively have financial obligations.”
Also, Coinshares’ counterparty for existing bitcoin ETPs is GABI Trading, and it is exposed to credit risk. A statement on the Coinshares website states:
“Any circumstance under which GABI Trading does not have sufficient capital or is otherwise unable to repay the Issuer could have an adverse effect on the Issuer’s business and its financial position and subsequently its ability to repay its liabilities created by the Certificates.”
In case of BITC, a CoinShares entity will directly hold physical bitcoins. That entity is Komainu — a joint collaboration between CoinShares, Ledger, and Nomura.
BITC will also boast a lower expense ratio of 0.98% compared to CoinShares’ existing bitcoin ETPs that charge 2%. Lansing added that the charges of the existing products won’t be reduced now as a result of legal limitations.
“When we first launched a bitcoin ETP, there was really the only way to do a bitcoin ETP, i.e., a synthetic structure. We would now run both sets of products simultaneously, and investors can choose what they want,” he added.
U.S. market bigger than Europe’s
As of now, Coinshares has around $3.5 billion worth of assets under its management. The firms U.S. competitor Grayscale has more than $27 billion worth of assets under management. When asked about why bitcoin investment products are less popular in Europe, the head of product noted that the U.S. market is much larger and hence “you would see a U.S. product by definition be larger than its European equivalent.”
“I spent years doing commodity products and work for a company that had for the longest time the largest gold products, gold ETPs in the European market, and they were four or five times smaller than the equivalent U.S. products. So that is always something to realize. The U.S. is a single, unified financial market, one of the largest, if not the largest in the world in terms of sophistication and access,” Lansing concluded.
Meanwhile, crypto ETFs aren’t coming to the U.S. anytime soon as the SEC continues to turn a blind eye towards all ETF applications.