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High demand for crypto exchange traded notes in Europe

Exchange traded notes (ETNs) are debt backed securities which offer investors exposure to the change in value of an underlying asset. They are typically listed on public exchanges and can be purchased by any broker with access to the listing exchange.

Exchange traded notes (ETNs) are debt backed securities which offer investors exposure to the change in value of an underlying asset. They are typically listed on public exchanges and can be purchased by any broker with access to the listing exchange.

In May of 2015, Stockholm based XBT Provider announced the authorization of ‘Bitcoin Tracker One’ (denominated in Swedish Kronor), the first ever Bitcoin-based security available on a regulated exchange. In October the same year, it followed up with Bitcoin Tracker EUR, a Euro-denominated Bitcoin-security — available through Nasdaq OMX.

Designed to mirror the return of the underlying asset (bitcoin) the two crypto ETNs have performed well — a fact that may have been on the minds of CoinShares when it purchased XBT Provider in September following the bankruptcy of large XBT shareholder KnC Miner.

Commenting on the recent performance of XBT Provider’s ETNs, US based Bloomberg exchange traded funds (ETFs) analyst Eric Balchunas says “What I find interesting is not just the fact that the assets are $430 million — that itself is a wild number. [But also] that this is already 10% of Sweden’s ETF market.” Balchunas says a comparable ETF in the U.S market would be valued at around $300 billion.

Balchunas observes that the fundamentals behind XBT’s ETNs are attractive to investors — similar in a way to exchange traded funds like GLD. “GLD is a great thing in terms of serving up what it is supposed to do. It (the Bitcoin ETN) does a way better job than anything else in the market because if you look at the price, it is always very close to the actual value of Bitcoin and that is what you want in a fund. You want something close — like GLD tracks the price of gold to a ‘T’ people can rely on that and have done it for 10 years. This thing (ETNs) has a record now.”

Recent data released by XBT revealed that Bitcoin ETNs took a year from launch to attract their first $10 million in Assets Under Management (AUM) and then ended 2016 with $36 million. In 2017 year-to-date, however, high demand has seen AUM increase to $450 million.

XBT followed up its Bitcoin ETNs on October 11th this year with two Ether ETNs. These (Ether Tracker One and Ether Tracker Euro) passed the $10 million AUM mark in the first week of trading, and hit $20 million by end of their 3rd week.

“It is safe to say that we are in the middle of a new wave of professional investors entering the market searching for crypto exposure in a format they are familiar with."
— — Laurent Kssis, XBT Provider

XBT Provider managing director Laurent Kssis says demand for professionally built crypto investment vehicles is “exceptional” and that assets under management in the bitcoin ETNs have grown more than 12 times, outpacing bitcoin price performance. “Couple this trend with the sizable initial growth in the AUM of the Ether ETNs,” he says, “and I believe it is safe to say that we are in the middle of a new wave of professional investors entering the market searching for crypto exposure in a format they are familiar with.”

U.S. investors cannot access cryptocurrency ETNs

In the US, investors do not have access to any similar products and are still waiting for approval from the Securities and Exchange Commission (SEC) for futures ETFs. Unfortunately, US citizens looking to access the European cryptocurrency ETNs will have a difficult time.

When asked if US investors could access a piece of the action and invest in ETNs, XBT group responded: “Generally speaking, to trade, an investor needs a broker with proper access to foreign markets, specifically, Nasdaq Stockholm. That said, the product is not marketable to investors in the US, per the prospectus.”

If and when they are approved, however, demand for similar products in the US market will likely be high, given the three major reasons why an investor might consider taking a position in a bitcoin ETN — as opposed to buying their own coins.

  • Security —  When you invest in bitcoin via an ETN, you are not responsible for ensuring the security of the bitcoin.

  • Speed and Convenience — The route to purchasing an ETN is via a familiar broker or brokerage platform and the ETN is listed on a trusted exchange. No new accounts are needed, no new verification steps required. This means an ETN is often the fastest way to purchase exposure to bitcoin, presuming you do not yet have an account with a crypto-currency exchange.

  • Potential Tax Advantages — In the UK for instance, the bitcoin ETN is uniquely eligible for inclusion in a tax-advantaged SIPP account, so this type of investment in bitcoin may experience a more efficient tax treatment than simply purchasing bitcoin outright.


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