The British company ETC Group at the end of June will hold the listing of a new exchange-traded product (Exchange Traded Product, ETP), are tied to bitcoin, on the German stock exchange Deutsche Börse. The product is registered as a debt paper is an attempt to circumvent the restrictions of the regulators to launch a bitcoin ETF. Thus he will open a traditional regulated financial markets access to digital assets. How will a new product that there is demand for crypto-ETP and whether to wait for the approval of the ETF this year — to understand DeCenter.
As will be arranged Bitcoin Exchange Traded Crypto from Deutsche Börse
Deutsche Börse Group is one of the largest exchanges in the world, organizing multiple securities markets. It includes the Frankfurt stock exchange, Eurex exchange and many financial subsidiaries. Deutsche Börse is known for its friendly attitude to the blockchain and cryptocurrency: the past few years, building its own blockchain-a platform for securities and the ecosystem for licenzirovanie assets.
The official name of the new exchange tool — Bitcoin Crypto Exchange Traded (BTCE), which can be translated as «bitcoin, exchange traded cryptocurrency». The name assigned to the product similar to the «tradable commodity» (exchange traded commodity, ETC.).
BTCE will be posted on owned by Deutsche Börse, the XETRA electronic trading platform and will be the first cryptoprotocol running on it. The distribution of the asset will be realized through the British platform of exchange-traded products for European investors HANetf, which will assume the role of a Central counterparty. This tool is often used in the European derivatives market — it will protect users from default by the other party of the transaction.
HANetf — adjustable platform, so investors can be sure that all bidders passed the strict KYC/AML checks. The press release also highlighted that the Issuer BTCE has partnerships with the world’s largest liquidity providers. The listing of the asset occurs after the Federal financial Supervisory authority (BaFin) approves the project BTCE, who in March of this year officially recognize the cryptocurrency as a financial instrument.
BTCE will be tied to bitcoin and fully secured digital asset in a 1:1 ratio. Results will be released 21 billion BTCE. Each of them will provide the holder with ownership of, 0.001 BTC, minus fees. Thus, the maximum number of BTCE would correspond to 21 million VTS — that is, all the possible coins. Bitcoins are stored in cold storage regulated custodial service BitGo. Strict KYC/AML standards of service guarantee that the coins will not be «dirty assets».
BTCE will be available to traders from Germany, the UK, Italy and Austria. It is assumed that the purchase BTCE easier way to invest in cryptocurrency, than the purchase of a digital asset directly. Unlike attachments directly in bitcoin, the user does not need to understand the technical functioning of cryptocurrency: purchase, storage, key management and other moments.
In addition, buy and sell ETC can be as common stocks or other exchange-traded products: through his usual broker, Bank that has access to XETRA, or through authorized representatives of the bidders. According to the creators BTCE, it will help to break down the barriers to access for the participants of a regulated market to digital assets.
Than BTCE is different from ETF
In a press release and issuing of documentation emphasized that the proposed hybrid product — trade VTS via ETR — though similar in structure to the ETFs (Exchange Traded Fund, ETF), but differs from them.
ETF — exchange traded Fund based on bitcoin. In fact, it is a set of securities by purchasing a share of the Fund, the user becomes the owner of this set. The traditional market is one of the most popular passive investment. In kryptomere ETF would be a way to exchange product for digital assets. But until now, no one issuing company failed to get permission from regulators to launch.
BTCE performs the same functions as the ETF, but it is structured as debt securities and not as equity. The documentation indicated that BTCE are «perpetual secured subordinirovannyh structural bonds.» Structuring BTCE as securities is likely to be an attempt to circumvent regulatory restrictions on the issuance of ETF.
The total cost ratio (TER) for ETP — management costs and warehousing — 2% per year. The traditional ETF for the control usually goes from 0.5 to 0.7%. «Premium class» BTCE, apparently, due to the fact that the withdrawal of this product on regulated markets is not an easy task.
How is the market for crypto-ETP
BTCE is certainly not the only similar product on the market. There are several ETF issuers that offer also ETP on cryptocurrencies.
The first such product on the basis of bitcoin in 2015 launched XBT Provider on Nasdaq Stockholm. In 2017, they added support for index-linked bonds in ether, and in 2018 — and bitcoin.
In 2018, the Swiss FINTECH-startup Amun AG released on major Swiss stock exchange SIX over ten crypto-ETP: based on BTC, ETH, XRP, XTZ, BNB, index, top 5 and top 10 coins among others. In February 2019, the company received permission from the Management control over the financial markets in Switzerland (FINMA) on the sale of ETP private clients in Europe. At the end of January this year, Amun AG added in the first SIX inverse bitcoin ETP, allowing you to earn the fall in the price of the underlying asset. And in February, major stock exchange Börse Stuttgart Germany also added to the inverse exchange bitcoin ETP from Amun AG. The company has announced high demand for cryptocurrency exchange products to the end of the year plans to launch ETP on several European exchanges.
Another company, WisdomTree, has launched a bitcoin ETP BTCW (WisdomTree Bitcoin ETP) on six Swiss exchange in December last year. The company’s first ETF, the issuers included in cryptoprocessor. The total cost ratio (TER) of the — 0.95%, which makes the product the cheapest crypto-ETP on the market.
Alexis Marinof, head of the WisdomTree commenting on the launch of the product said that the company «saw enough to believe that digital assets such as bitcoin, are not a passing trend and can play a role in investment portfolios — We see a lot of Parallels between the crypto space and commodities». The company believes that «bitcoin is here to stay» and «the crypto-industry is huge potential.»
The Swiss jurisdiction for listing of crypto-ETP selected companies is not accidental — it is in this country the most favourable regulatory requirements for the cryptocurrencies compared to the rest of Europe. However, Switzerland is not the only country that allowed ETP to crypto-currencies.
In April of this year on the exchange Nordic Growth Market, the Swedish unit’s second largest major German stock exchange Stuttgart Group, start ETP on the basis of Litecoin and XRP. Last may, the bitcoin ETP started in Toronto, Canada. The sale of this product of the American stock exchange to investors is prohibited.
When waiting for the launch of the ETF and whether the tool market
Many professional investors still fear to invest in digital assets directly. Financial instrument based on bitcoin that allows you to earn on it, but without direct interaction with the asset is a perfect solution.
The fact that such tools are in demand, confirms the success of the bitcoin trust, Grayscale Investments: he purchased every third nameany bitcoin for spring 2020 and reported record attracting investment from institucionales. The demand for the Fund’s shares so high that they consistently traded at a premium to the price of the underlying asset.
Question about starting a bitcoin ETF has been relevant for several years. On the market there are several ways to exchange product for digital assets, but to fully regulated ETF yet. The Commission on securities and exchange Commission (SEC) had filed dozens of applications for the opening from different companies, but the Ministry rejected them all. Among the reasons for failure are: lack of regulation on the stock market, manipulations with prices of assets, legal difficulties with liquidity, storage and arbitration, non-compliance with SEC rules.
In February 2019, the Chairman of the SEC, Jay Clayton during an interview with CNBC said that the main reasons for failure of the Commission to approve the bitcoin ETF — the absence of a regulated custodian that can provide the proper level of storage, as well as unregulated stock exchanges, manipulate the market prices. Cryptologist was hoping that the problem will solve adjustable custodian from Bakkt, launched in September last year. However, it did not change the Commission’s position.
So, in February of this year the SEC after re-consideration, again rejected the request to start a bitcoin ETF, this time filed by Wilshire Phoenix and NYSE Arca Inc. The arguments of the SEC are the same: the claimants have not established the necessary conditions for an effective response to the manipulation. Therefore, the ETF can be launched only after the interested parties will be able to provide enough compelling evidence that the tools are safe for institutional investors. Another failure of the SEC in approving the ETF leaves almost no chance that the tool will be launched this year.
Most likely, one of the companies that apply in the SEC, eventually will be able to ensure compliance with all regulatory mechanisms, and the Commission finally approves a crypto-ETF. But, it seems that running this tool, the community has not particularly waiting for. Regulated market and infrastructure for institucionales develop without them: the launch of more and more custodial services, companies are fighting for the main role of the Prime broker industry, institutional investment is growing. Cryptobinary already brought to market a reliable way of buying bitcoins for institucionales.
Nevertheless, the launch of regulated crypto-ETF still could be a great news, which embodies the development of financial instruments for institutional players in the stock market and increase the liquidity of bitcoin, reducing the opportunities for manipulation. But it’s not going to revolutionize the market and will not elevate him to the moon, as expected.