Cryptocurrency investment products may prove to be the missing link in mass adoption and are now becoming increasingly popular.
The first stock fund to trade Bitcoin (BTC) futures was launched in the United States on October 19, 2021.
This first ETF, the ProShares Bitcoin Strategy ETF, quickly became one of the most voluminous ETFs ever since its inception, and several other Bitcoin futures ETFs were launched in the US shortly thereafter.
For Martha Reyes, head of research at cryptocurrency exchange Bequant, these options are important. Speaking to Cointelegraph, Reyes noted that ETFs “have proven extremely popular in traditional finance in recent years, with ETF assets expected to reach $ 14 trillion by 2024.”
Reyes said that investors left out of the market can now choose to invest in cryptocurrencies if they prefer “low cost, flexibility and convenience.” [of ETFs]especially since you do not need to manage the cryptocurrency yourself. ”
Monitoring cryptoassets could prove to be a “technical barrier for some non-crypto aborigines,” Reyes said. The introduction of a cryptocurrency ETF may offer investors the desired diversification of their portfolios with cryptocurrencies, although some may need to access markets “through baskets”, reflecting various trends in this rapidly emerging market. She added:
“Others prefer to lend a helping hand or use a combination of strategies. It is important that investors have a choice. ”
In fact, several variants have been launched over the past few weeks. The American company WisdomTree has listed its exchange-traded crypto product (ETP) Crypto Mega cap Equal Bodyweight ETP on the Euronext stock exchanges in Paris and Amsterdam.
It is traded under the ticker MEGA, a product backed by physical cryptocurrencies such as Bitcoin and Ether (ETH), and balances quarterly. WisdomTree also launched WisdomTree Crypto Marketplace (BLOC) and WisdomTree Cryptocurrency ETP (WALT) in Europe.
Bitcoin Funds AG also released two ETPs on the Swiss exchange 6 in December, allowing investors to invest in Bitcoin and Ether. These products are actively regulated by FICAS AG and are intended for institutional, professional and private investors.
These products have been successful so far and other options are regularly introduced to the market, which significantly increases the choice of investors in the market. According to some experts, these products are part of the next step that cryptocurrencies must take for mass adoption.
Investment products and applications
For Reyes, participation in these investment products has so far been “predominantly institutional,” especially in countries like the US where only futures products are traded. She said retail investors “are aware of the additional cost of converting futures versus cash ETFs, which means the underlying asset will perform worse.”
Reyes added that in order to hit retail, we will likely have to see a spot product.
Speaking to Cointelegraph, Sui Chung, CEO of CF Benchmarks, an FCA-regulated crypto index provider, said crypto investment products are “a major driver of mass adoption” and that the company wants to “see more options along the way.” The effect of the products may also be important:
“We shouldn’t underestimate the impact of these products in attracting new investors and capital for cryptoassets and how this can stimulate their distribution in the long term.”
Karan Sood, CEO and Managing Director of Cboe Vest, an asset management partner of Cboe World Marketplaces, told Cointelegraph that the increased participation of a wide range of investors is “good for the market” as it “increases liquidity and helps develop infrastructure markets. promotes. ”
The court said that investors should carefully weigh their options before investing, as a number of products are first launched to give investors access to the cryptocurrency market, while others “seek to provide a solution to the extreme volatility of Bitcoin.”
According to the Court, volatility is “inherent in cryptoassets,” and the sell-off, in which bitcoins and other cryptoassets lose more than half of their value, is expected to decline by more than 20%. … He added:
“What’s new, however, is the availability of funds that give investors access to bitcoin using strategies designed to mitigate the impact of a sharp, sustained downturn.”
These funds, he said, use “a range of managed volatility investment strategies that prevail in traditional asset classes” and apply them to bitcoin futures to protect investors from cryptocurrency volatility.
This instability is intended to keep some institutional investors on the sidelines and prevent regulators like the US Securities and Exchange Commission from finding ways to protect investors in an impartial, rational, and adaptable way to innovate in space.
According to Chang, the cryptocurrency market has matured so much that there are now “underlying” exchanges like Coinbase and Kraken that guarantee fair and uncontrolled trading, so market manipulation is not a major issue. However, regulated products are preferred over more conservative institutions and investors.
Given the lack of a spot bitcoin ETF in the US and the shortcomings of the futures products mentioned above by Reyes, retail investors may enter other markets or buy cryptocurrencies. However, for some, these options are not optimal.
Early stage crypto investment products
Buying cryptocurrency on the spot market has been the first choice for most crypto investors in recent years, but more conservative investors may want to diversify their portfolios.
As Cboe Vest’s Court said, “there is very little regulation in the form of regulation” compared to “the trading and storage infrastructure that exists for common assets such as stocks, bonds and funds.” This lack of regulation, he said, “is evidenced by the constant news of key loss, system hacking and crypto asset trading fraud.”
Bitcoin futures investment products are regulated by the Commodity Futures Trading Commission, while bitcoin-related mutual funds are actively managed by regulated institutions that have historically provided strong investor protection.
Taking these differences into account, the Court pointed out that “unless the regulation of spot bitcoins is changed, there is an appropriate basis for investments based on BTC futures, but not for investments based on bitcoin futures.” Point delivery “.
Specifically, spot Bitcoin ETFs are available in various jurisdictions. In December, Fidelity Canada launched one such product called the Fidelity Edge Bitcoin ETF. It is listed on the Toronto Stock Exchange and is denominated in both Canadian dollars and US dollars.
According to the Court, US regulations may pose a burden on investment product manufacturers, but they “have provided American investors with significant value and protection over the years.” These guarantees have been “proven for decades,” he said, and investors should choose locally regulated products whenever possible.
While futures investment products may not be optimal for retail investors, the Court argues that a number of sophisticated products have been introduced to enable investors to access the cryptocurrencies they may be looking for. He concluded:
“Investing in funds overseas can expose US investors to enormous risks and tax burdens.”
Bequant’s Reyes noted that crypto ETFs with less than $ 20 billion in assets are managed through 50 products, which means we are “still in the early stages of launching” these products.
However, it found the approval of ETF futures and the rejection of spot ETFs “incompatible” as spot ETFs were sold in other jurisdictions. To make matters worse, the futures product “primarily benefits institutional investors because it is too expensive for private investors.
In particular, Grayscale Investments opposed the SEC over VanEck’s refusal to register spot bitcoin ETFs and issued a letter claiming that the SEC had mistakenly denied such products after it opened several bitcoin futures ETFs that were approved.
CF Benchmarks CEO Sui Chung said that while futures products are regulated instruments under the supervision of the CFTC, this is not so obvious “for spot bitcoins” and that the SEC is challenged to align its compliance mandate with the wishes of US investors for reconciliation.
However, Chang noted that Bitcoin ETFs “made an irreversible change” as they “are available to every member of the investment community in the world’s deepest capital market.”
According to him, there were no major disruptions in the market, and “the sky did not fall,” which means that we “passed the point of no return.” According to Chang, companies that can offer ETF investors can help diversify and expand their portfolio …