Points are not being returned? Investment products in cryptocurrency could be the key to mass adoption

Cryptocurrency investment products could be the missing piece in mass adoption and are now becoming increasingly popular.

analysis

The first Bitcoin (BTC) Futures Exchange Traded Fund (ETF) was launched in the United States on October 19, 2021.

That first ETF, the ProShares Bitcoin Strategy ETF, quickly became one of the highest-volume ETFs of all time after its inception, and several other Bitcoin futures ETFs were launched in the U.S. shortly afterwards.

For Martha Reyes, head of research at the Bequant crypto exchange, these options are important. Speaking to Cointelegraph, Reyes noted that ETFs have “proven extremely popular in traditional finance in recent years, with ETF assets expected to reach $ 14 trillion by 2024”.

Reyes said investors who stayed out of the market can now choose to invest in cryptocurrencies if they prefer “low cost, flexibility and convenience”. [of ETFs], especially since you don’t have to manage the cryptocurrency yourself. ”

Monitoring crypto assets, Reyes said, could prove to be “a technical barrier for some non-crypto natives.” Adopting a crypto ETF could offer investors the kind of diversification they want in their portfolios through cryptocurrencies, although some may want “across baskets” of market access reflecting different trends in this rapidly evolving market. She added:

“Others prefer to lend a hand or use a combination of strategies. It is important that investors have the right to choose. “

In fact, several options have been launched in the past few weeks. The US company WisdomTree has listed its exchange-traded crypto product (ETP), Crypto Mega cap Equal Bodyweight ETP, on the Euronext stock exchanges in Paris and Amsterdam.

Traded under the ticker MEGA, a product backed by physical cryptocurrencies like Bitcoin and Ether (ETH), and is rebalanced quarterly. WisdomTree also launched the WisdomTree Crypto Marketplace (BLOC) and WisdomTree Cryptocurrency ETPs (WALT) in Europe.

Bitcoin Funds AG also issued two ETPs on the Swiss Exchange 6 in December and enabled investors to invest in Bitcoin and Ether. These products are actively regulated by FICAS AG and are aimed at institutional, professional and private investors.

These products have been successful so far and other options are regularly brought onto the market, which effectively increases the choice of investors in the market. For some experts, these products are part of the next step cryptocurrencies need to take to achieve mass adoption.

Investment products and application

For Reyes, participation in these investment products has so far been “primarily institutional”, especially in countries like the USA, where only futures products are traded. She said retail investors are “aware of the additional conversion costs of futures compared to cash ETFs, which means that the underlying asset will underperform”.

Reyes added that in order to get into retail we will likely have to see a spot product.

Speaking to Cointelegraph, Sui Chung, CEO of CF Benchmarks, an FCA regulated crypto index provider, said that crypto investment products are “a major driver of mass adoption” and that the company wants to “see more options along the way” . The effect of products can still be important:

“We shouldn’t underestimate the impact these products have on attracting new investors and capital for crypto assets and how this can drive adoption over the long term.”

Karan Sood, CEO and Managing Director of Cboe Vest, an asset management partner of Cboe World Marketplaces, told Cointelegraph that increased participation from a wide range of investors was “good for the market” as it “increases liquidity and for the Development of infrastructure markets contributes. ”

Sood said that investors should weigh their options carefully before investing, as a number of products are launched initially to give investors access to the cryptocurrency market while others “seek to provide a solution to Bitcoin’s extreme volatility problem”.

According to Sood, volatility is “endemic to crypto assets,” and the sell-off, in which Bitcoin and other crypto assets lose more than half of their value, is expected to decline by more than 20%. . He added:

“What is new, however, is the availability of funds that give investors access to Bitcoin using strategies designed to reduce the effects of a sharp, sustained decline.”

These funds, he said, take “a number of managed volatility investment strategies that are prevalent in traditional asset classes” and apply them to bitcoin futures to protect investors from cryptocurrency volatility.

This volatility is intended to keep some institutional investors on the sidelines and prevent regulators like the US Securities and Exchange Commission from finding ways to protect investors in an unbiased, rational, and adaptable manner to innovations in space.

For Chung, the crypto market has matured to the point that there are now “core” exchanges like Coinbase and Kraken that guarantee fair and unmanipulated trading, so market manipulation is not a major problem. However, regulated products are preferred to more conservative institutions and investors.

Given the lack of a spot Bitcoin ETF in the US and the downsides of the futures-based products mentioned above by Reyes, retail investors can get exposure to other markets or buy cryptocurrencies. However, these options are not optimal for some.

Early stage for crypto investment products

Buying crypto on the spot market has been the first choice for most crypto investors in recent years, but more conservative investors may want to diversify their portfolios.

As Cboe Vest’s Sood put it, “there is very little regulation in the form of regulation” compared to the “trading and custody infrastructure that exists for conventional assets like stocks, bonds and funds.” This lack of regulation, he said, was “evidenced by the persistent news of key loss, system hacking and fraud in crypto-asset trading.”

Bitcoin futures investment products are regulated by the Commodity Futures Trading Commission, while Bitcoin-related mutual funds are actively managed by regulated institutions that have historically provided strong investor protection.

With these differences in mind, Sood pointed out that “unless the regulation of spot bitcoin is changed, there is an appropriate foundation for BTC futures-based investments, but not for those based on bitcoin futures.” Spot Delivery “.

In particular, spot Bitcoin ETFs are available in a variety of jurisdictions. In December, Fidelity Canada launched one such product called the Fidelity Edge Bitcoin ETF. It is traded on the Toronto Stock Exchange and is denominated in both Canadian and US dollars.

Regulations in the US can be a burden on investment product manufacturers, Sood said, but they have “provided US investors with significant value and protection over the years.” These safeguards, he said, “have been proven over the decades” and investors should opt for locally regulated products whenever possible.

While futures-based investment products may not be optimal for retail investors, Sood argues that a number of sophisticated products have been introduced to allow investors to get exposure to cryptocurrencies they may be looking for. He concluded:

“Investing in funds abroad can expose American investors to enormous risks and tax burdens.”

Reyes of Bequant pointed out that crypto ETFs with assets of less than $ 20 billion are managed in 50 products, meaning that we are “still in the early stages of launching” those products.

However, she found the approval of ETF futures and the rejection of the spot ETF “inconsistent” as spot ETFs were traded in other jurisdictions. To make matters worse, a futures product “primarily benefits institutional investors because it is too expensive for private investors.

Specifically, Grayscale Investments took a turn against the SEC for denying VanEck’s spot Bitcoin ETF filing, and issued a letter alleging the SEC wrongly denied such products after it opened several Bitcoin futures ETFs had approved.

CF Benchmarks CEO Sui Chung said that while futures products are regulated instruments with CFTC supervision, this is not so obvious “for spot Bitcoin” and that the SEC has a challenge to match its enforcement mandate with the wishes of the US Reconciling investors.

However, Chung noted that Bitcoin futures ETFs “have made an irreversible change” as they are “available to every member of the investing public in the world’s deepest capital market”.

The market has not seen any major disruptions, he said, and “the sky has not fallen,” which means we have “passed the point of no return”. For Chung, companies that can offer investors an ETF can help diversify and grow their portfolio …