Paris-based alternative asset manager Melanion Capital has obtained approval from Autorité des Marchés Financiers (AMF), France’s securities regulator, for an ETF tracking an index with up to 90% correlation with the price of bitcoin.
Melanion Capital is set to launch a UCITS ETF on Euronext Paris that is correlated to the performance of bitcoin.
The Melanion BTC Equities Universe UCITS ETF (BTC FP), which is set to list on Euronext Paris in the coming weeks, will track the manager’s proprietary Melanion Bitcoin Exposure Index.
The index, which is administered by Germany fintech BITA, is constructed according to a methodology that aims to bridge the gap between equities and bitcoin.
Specifically, it captures the net total return performance of a selection of companies listed on recognised North American and European exchanges that exhibit the highest correlation and revenue exposure to bitcoin.
To be eligible for inclusion in the index, a company must either derive at least 50% of its revenues from crypto asset management and trading, crypto banking and associated services, crypto mining and provision of crypto mining hardware, or blockchain technology, or, alternatively, must hold cryptocurrency assets on its balance sheet, either as cash and receivables or as investment assets, of at least $10 million.
Companies must also have a market capitalisation in excess of $100m and an average daily traded value of at least $500,000.
Index constituents are weighted according to their beta coefficient against bitcoin, capped based on liquidity, and rebalanced and reconstituted on a quarterly basis. Beta coefficients are calculated as the covariance between the constituent weekly returns and the bitcoin weekly returns divided by the variance of the bitcoin weekly returns. Only constituents with positive betas are considered for inclusion.
The number of constituents in the index is capped at 30. Notable constituents currently include Argo Blockchain (9.2%), Marathon Patent Group (7.8%), Bitfarms (7.5%), Galaxy Digital (6.4%), Voyager Digital (6.0%), Riot Blockchain (5.4%), HIVE Blockchain Technologies (5.2%), Hut 8 Mining (4.5%), Bit Digital (4.3%) and Future FinTech (4.1%). (Index weights as of May month-end).
By tracking the index, the ETF seeks to expose investors to the daily price movements of bitcoin through a diversified wrapper that meets UCITS standards.
According to Melanion Capital, there are many bitcoin-backed ETPs listed in Europe but most European regulators apply a look-through approach rendering them ineligible for most institutional investors, due to their investment restrictions.
“It is, therefore, a major step for asset managers, allocators and in general for all investors interested in bitcoin, allowing them to have an effective tool to diversify their portfolio in a UCITS compliant format”, said Jad Comair, President of Melanion Capital.
Cyril Sabbagh, Head of ETF at Melanion Capital, added: “Holding our ETF is a better alternative than a straight investment in bitcoin, as it closely tracks its performance in a diversified basket, while eliminating the risks with which it is usually associated, like loss or piracy. Indeed, bitcoin’s main concerns for institutional investors are hack, theft, loss, storage, security or crime.
“By investing in equities replicating the bitcoin performance, investors can achieve diversified asset allocation that was not available before. Given bitcoin’s absence of correlation to traditional assets, and the ETF’s UCITS character, allocators should certainly be interested”.
The ETF will have a total expense ratio of 0.75% and is expected to cross-list on Xetra in due course.