ETC Group, a specialist issuer of crypto-backed exchange-traded products, has unveiled its maiden product: the BTCetc Bitcoin Exchange Traded Crypto (BTCE GY).
The ETP trades in euros and is 100% backed by bitcoin.
The ETP is set to debut on Xetra next week and will provide investors with fully backed exposure to bitcoin.
Bitcoin is the world’s largest cryptocurrency by market capitalization.
The start-up behind the launch is headed up by Bradley Duke, an alumnus of Jefferies and KCG, and backed by electronic market maker XTX Markets and financial services firm ITI Capital.
ITI Capital is the parent of ITI Funds, the issuer of a pair of LSE-listed Russia ETFs.
London-based white-label issuer HANetf is also involved in the launch, advising on operations and taking lead responsibility for product marketing and distribution.
ETC Group’s main operating address is in London but it is effectively a grouping of various interconnected entities registered in Frankfurt, London, and Guernsey.
From a regulatory perspective, the product has been approved by BaFin, the German financial regulator, which announced in March that it officially recognized cryptocurrencies as financial instruments.
BaFin’s recognition of cryptocurrencies as legitimate financial instruments opened the door to next week’s Xetra listing. Up to now, the majority of the crypto-backed ETP-style vehicles available in Europe had listed on Zurich’s SIX Swiss Exchange, which was an early mover engaging with the cryptocurrency community.
The ETP is set to be passported for distribution in the UK, Italy, and Austria.
The product
The ETP is the first bitcoin product to list on Xetra and, like other bitcoin ETPs, delivers exposure to the cryptocurrency with the added oversight, security, and liquidity of an exchange-traded product.
The ETP is the first centrally cleared bitcoin product. This is significant, potentially opening the door to institutional investors which are typically prevented from trading non-centrally-cleared instruments – a restriction that presently precludes direct transactions in bitcoin itself or in any of the other bitcoin ETPs that are currently available. Clearing through a central counterparty (CCP) system, as opposed to bilateral settlement, reduces the counterparty risk that market participants are exposed to.
It is also the first ETP to give holders of shares a claim on a predefined amount of bitcoin which they are entitled to redeem in bitcoin if they so wish – albeit with a fee of $2,500 if redeeming in bitcoin for an amount that is less than $250,000. Each share corresponds to 1/1000th of a bitcoin.
The real advantage of the product, however, as with other bitcoin ETPs, is that less technologically savvy investors can gain exposure to the asset without having to engage with the technical challenges of purchasing and storing bitcoin such as setting up a cryptocurrency wallet, managing cryptographic keys or trading on unregulated crypto exchanges.
The ETP comes with an annual fee of 2.00% and is tradeable in euros.
Commenting on the launch, Bradley Duke, CEO of ETC Group, said, “BTCE brings the transparency and investor protection that regulators and institutional investors require to the world of bitcoin. The crypto sector has been held back by concerns about complexity, accessibility, and governance. With BTCE, we are transporting bitcoin into the fold of mainstream, regulated financial markets. Investors get the benefits of trading and owning Bitcoin through a regulated security while having the optionality of redeeming Bitcoin if they choose.”
Hector McNeil, co-Founder and co-CEO at HANetf, added, “We are very excited to work with Bradley and his team at ETC Group. Yet again HANetf is acting as a force for innovation, demonstrating the power of our white-label ETF model to break down the barriers to entry to this market. Investors truly want value-added products and HANetf’s unique multi-manager platform delivers this – as the launch of BTCE proves.”
Comparable products
The ETP will likely compete with products from WisdomTree and 21Shares, namely the WisdomTree Bitcoin ETP (BTCW SW) and the 21Shares Bitcoin ETP (ABTC SW).
Like the ETC Group product, the WisdomTree and 21Shares ETPs are 100% backed by bitcoin custodied in institutional-grade storage solutions. They differ in terms of bitcoin entitlement, listing venue, and fees.
The WisdomTree and 21Shares products correspond to 1/100th and 1/200th of a bitcoin, respectively, and come with fees of 0.95% and 1.49%. They are listed on SIX Swiss Exchange.