Cryptocurrency exchange-traded products (ETPs) have captured the imagination of investors over the past year with assets surging to record levels amid the meteoric rise of the rapidly developing asset class.
In 2020, the crypto ETP market exploded increasing more than four-fold to a record $3.1bn by the end of the year, according to data from TrackInsight. The surge has continued unabated this year with assets growing to a fresh record of $4.4bn.
Much of this has been driven by the success of bitcoin, fuelled by a continued public embrace of cryptocurrencies by large institutions such as BlackRock, as well as endorsement from Tesla co-founder and CEO Elon Musk.
Earlier in February, Tesla disclosed in an SEC filing that it had bought $1.5bn of bitcoin, sending the price of the cryptocurrency to a fresh all-time high of $44,795 on 8 February. Some sell-side analysts believe there is plenty more room for growth with Citi predicting the price of bitcoin could soar as high as $300,000 by the end of the year.
Crypto ETPs have benefitted from the dramatic rise with the BTCetc Bitcoin Exchange Traded Cryptocurrency (BTCE) seeing its assets under management (AUM) more than double in December to $352m, and by 11 February nearly doubling again to $636m.
Meanwhile, more ETF issuers have entered the market in recent months in a bid to capture the growing demand with VanEck the latest to list its VanEck Vectors Bitcoin ETN (VBTC) on Deutsche Boerse.
In the build-up to ETF Stream’s webinar on crypto ETPs on 17 February, Anna Fedorova assesses whether ETPs are the perfect vehicle for investors to access the asset class.
Crypto ETP boom
The number of ETPs offering access to bitcoin or other cryptocurrencies has been growing steadily over the last five years. According to TrackInsight, the number of listed products available to European investors has gone from zero in 2014 to 17 today with 2019 seeing a particular boom as nine new products were brought to market. 21Shares offers the most extensive range with 12 crypto ETPs listed across European exchanges.
Ankush Jain, co-manager of the Aaro DLT Multifund, a fund of funds investing in cryptoassets, noted the SIX Swiss Exchange has been particularly instrumental in driving the growth of crypto ETPs.
“The turnover of all crypto ETPs on the SIX Swiss Exchange has grown from £425m in 2017 to £890m in 2020 while the number of trades have jumped from about 20,000 in 2017 to nearly 50,000 in 2020.”
There are a number of advantages to using ETPs for exposure to alternative assets, such as digital currencies, he said, including the fact they are “listed, regulated, liquid, available to retail investors, and don’t present issuer risk due to their collateralised nature”.
He added that the “low minimums and ease of subscriptions (without lengthy paperwork) and increased liquidity also presents advantages when it comes to effective portfolio management”.