These days bitcoin and a variety of other digital assets are now being traded as funds and traditional equity holdings. The landscape of crypto investment vehicles has changed significantly as institutional and retail investors don’t need direct exposure to cryptocurrencies in order to invest in this technology.
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Traditional Investment Products Tethered to Digital Assets
Bitcoin has been around for more than a decade and the digital asset has invoked the creation of trusts, exchange-traded products, cash-settled futures, and investment funds. Investment products like these are tied to cryptocurrencies like BTC but there’s a slew of others that track baskets of coins and single assets like ETH, BCH, and XRP. Derivatives products allow investors to trade crypto-based futures and options adding a whole new landscape to digital currency markets. For products like these, customers don’t need to hold the cryptocurrency or be concerned about storage as the exposure is quite different than traditional crypto spot markets.
Crypto Products Managed by Grayscale, CME Group, Erisx, Amun AG, Ledgerx, and Wisdomtree
One of the earliest investment vehicles tethered to BTC is Grayscale’s Bitcoin Investment Trust (OTC:GBTC) which launched on September 25, 2013. Originally GBTC was an investment for accredited investors only but the product eventually received FINRA approval so eligible shares could trade publicly. The Trust is not an exchange-traded fund (ETF) per se, but the product is modeled in a similar fashion. GBTC can be traded on the over-the-counter market OTCQX and since the trust’s launch, Grayscale has created a variety of other investment solutions for other cryptocurrencies. Currently, there’s the Bitcoin Cash Trust, Ethereum Trust, Ethereum Classic Trust, Litecoin Trust, Stellar Lumens Trust, Horizen Trust, Zcash Trust, XRP Trust, and the Digital Large Cap Fund.
Investors can also purchase bitcoin exchange futures offered by the global markets company CME Group. The company announced it was offering BTC-based futures on October 31, 2017, and investors have been able to trade the derivatives product since December 2017. Essentially CME Group’s BTC futures are cash-settled, based on the CME CF Bitcoin Reference Rate (BRR). The BRR allows the exchange to reference the daily rate of BTC prices measured in USD. Each contract unit is equal to five bitcoins and with a margin rate of 35%, investors can trade the BTC product on CME Globex and CME Clearport.
Investors interested in crypto futures products can also trade with Bakkt, but the offerings are physically settled futures. Additionally in July, Erisx was approved by the U.S. Commodity Futures Trading Commission (CFTC) and granted a derivatives clearing organization (DCO) license. Ledgerx was also CFTC approved a week prior by receiving a designated contract market (DCM) license so the firm can provide new derivatives products. More futures contracts that utilize bitcoin cash (BCH) will soon be available at a CFTC-regulated exchange during the first quarter of 2020.
News.Bitcoin.com just reported on Amun AG getting its base prospectus approved by the Swedish Financial Supervisory Authority (SFSA). Right now Amun manages nine exchange-traded products (ETPs) that are traded on Swiss Bourse. The company offers the Amun Bitcoin Suisse ETP (ticker: ABBA) a fund that tracks prices for both ETH and BTC.
Alongside this, Amun’s other index ETPs consist of the ‘Hodl’ crypto basket, the Bitwise Select 10, and the Sygnum Platform Winners ETP. Amun also offers six single digital currency tracking ETPs for BCH, BNB, BTC, XRP, ETH, and XTZ. Investors can obtain Amun products on the Swiss exchange SIX and after the SFSA approval Amun plans to expand into more European markets. Another ETP listed on Swiss Bourse is Wisdomtree’s physically-settled ETP which was recently listed on the stock exchange. The New York-based Wisdomtree ETP called BTCW allows people to invest in BTC “without needing to set up with a custodian themselves.”
ETPs and Traditional Finance Applications Changed the Precious Metals Landscape, Will It Do the Same to Cryptocurrencies?
On December 7, the U.S. Securities and Exchange Commission (SEC) approved the Stone Ridge Trust VI registration and the firm is cleared to launch the NYDIG Bitcoin Strategy Fund. The fund invests in BTC futures contracts that are cash-settled on CFTC registered exchanges. A similar fund from France launched on December 6 when the French asset management firm Napoleon AM launched the “Napoleon Bitcoin Fund.” The fund is only available to residents of France and it requires a $110,000 buy-in. Just like the Stone Ridge Bitcoin Strategy Fund the Napoleon Bitcoin Fund will use CME Group-based cash-settled BTC futures.
Just like precious metals markets in the eighties, digital currencies are finding a home within traditional finance. Exchange-traded products, trusts and other types of investment funds transformed gold and precious metals markets 16 years ago. During the late nineties, precious metal-based funds started to grow exponentially, but the first gold exchange-traded fund (ETF) didn’t launch until March 28, 2003. The same thing is happening with bitcoin and other digital currencies within the cryptoconomy. Even though there’s a wide range of traditional investment vehicles tied to crypto many speculators are patiently waiting for a U.S. approved Bitcoin ETF. So far, after many attempts from myriad firms the U.S. regulator (SEC) still hasn’t approved a Bitcoin ETF. Despite the lack of a regulated ETF in the U.S., firms like Amun, Bakkt, Grayscale, CME Group, Wisdomtree, and others still provide traditional investment vehicles tied to crypto.
What do you think about all the traditional investment products that utilize cryptocurrencies? Let us know what you think about this subject in the comments section below.
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