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Investing in cryptocurrency

The institutionalization of the crypto space is seen as the sure path to mainstream status. However, this has become a daunting task as regulations and custodial issues continue to restrict the activities of institutional investors in the crypto market.

Experts have always linked the mass inclusion of institutional investors to the availability of a regulated Bitcoin ETF and 2018 took us a step closer to realizing this humongous feat. Throughout the year, the approval of a Bitcoin ETF garnered unprecedented attention with various companies looking to bypass the numerous hurdles that had stalled this possibility over the years.

Unfortunately, this was not meant to be and instead, it was the news that a certain startup had successfully deployed its crypto ETP in the fourth largest stock exchange in Europe that helped reinforce crypto’s global status. As expected, the development has become a hot topic with many comparing it to the Bitcoin ETF that had eluded the largest economy in the world. In this article, we will take a look at the concept of a crypto ETP and BItcoin ETF and how each would help crypto’s foray to mainstream adoption.

What is an ETP?

According to Investopedia, exchange-traded products (ETP) are a type of security that is derivatively priced and trades intra-day on a national securities exchange. As such, they give investors an opportunity to indirectly invest in a commodity since the ETP tracks and mimic its price. The commodity that falls under this category include currencies,  a share price, and other investment instruments.

Interestingly enough, an ETP can also come in form of an actively managed fund, therefore, an exchange-traded fund (ETF) is one of the forms of ETP. Other types of ETP include exchange-traded notes (ETNs) and exchange-traded vehicles (ETVs).

What Is A Crypto ETP?

From the definition of an ETP above, we can say that a crypto ETP is security that derives its prices from cryptocurrencies. Therefore, the underlying commodity is a digital asset which would mean that the ETP is either a physical-backed investment vehicle or one that depends on markets that track the performance of the digital asset. In both cases, the ETP offers investors and retail traders an easier route investing in cryptocurrencies without worrying about the risks of physically storing the assets and the various regulatory issues that are plaguing crypto.

Amun’s Crypto ETP

In November, there was a lot of buzz surrounding SIX Swiss Exchange decision to approve AMUN’s multi-crypto ETP. Indeed, it was a feat that would further reaffirm institutional investors’ interest in accessing the opportunities available in the crypto market. However, this development was not the first of its kind; there already exist crypto ETPs in Sweden and the United States.

What sets this particular ETP apart is that it tracks more than one digital asset. The announcement made by Amun AG revealed that the crypto ETP would track five cryptocurrencies which Include Bitcoin, XRP, Ethereuem, Litecoin and Bitcoin Cash. As you would expect, Bitcoin has the largest share of the ETP followed by XRP.

Also, the ETP is physically backed by the assets, which means that the company has employed a custodial service that would store the digital assets. In a way, this is a huge achievement if we consider that the unavailability of efficient and regulated custodial services have played a major role in the ongoing Bitcoin ETF saga playing out in the US.

What Is A Bitcoin ETF?

We have established the fact that an ETF is a form of ETP. Over the years, ETF has become the most popular ETP because it offers investors lower risks. In the case of a Bitcoin ETF, Bitcoin is the underlying asset that the ETF tracks. Many of the applications that SEC rejected proposed that the companies were opting to track the Bitcoin futures market, which SEC believes is of insignificant size. The only one which proposed n alternate method of physically backing the ETF is the VanEck SolidX bitcoin ETF proposal which is still under consideration.

Although there are other issues that have hindered the approval of a Bitcoin ETF, the unavailability of regulated custodial services will play a major role in either the rejection or the approval of VanEck’s proposal. However, as Amun’s crypto ETP has successfully shown, there now exist efficient and reliable crypto custodial services that would make it possible to physically back a Bitcoin ETF. Whether this plays a major role in SEC’s decision come February is yet to be seen.

Which Is More Significant?

In the case of Switzerland’s crypto ETP, it has laid a groundwork that would help Europe open its door to more crypto investment vehicles. In addition, setting out as the first physically backed crypto ETP is one that has changed the notion that custodial services are ineffective when it comes to digital assets.

On the other hand, a Bitcoin ETF in the US will dwarf the effect of the crypto ETP in Switzerland in the race for institutional adoption. The American market is way bigger than Switzerland’s principal stock exchange, and it would lead a host of institutional investors into the burgeoning crypto market.


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