Exchange Traded Notes (ETNs) in the cryptocurrency sector have gained popularity in Europe, offering investors exposure to digital assets through regulated exchanges. With the implementation of the Markets in Crypto-Assets Regulation (MiCAR), which entered into force in June 2023, the regulatory landscape for crypto-based financial products is evolving.
Crypto ETNs in Europe
Crypto ETNs are debt securities that track the performance of underlying cryptocurrencies or crypto indices. They are traded on regulated exchanges, providing investors with a familiar and potentially more secure way to gain crypto exposure. Some examples of crypto ETNs available in Europe include:
- VanEck‘s ETNs tracking Bitcoin, Ethereum, Polkadot, Solana, and TRON, traded on Deutsche Börse’s Xetra (link to website).
- 21Shares‘ range of crypto ETPs, which use Vinter as their index provider (link to website).
- ETC Group‘s Bitcoin Cash ETP (ticker: BTCH) on Deutsche Boerse XETRA (link to website).
Deutsche Börse’s Xetra has become a leading venue for crypto ETN trading in Europe, with an average monthly order book turnover of €900 million.
MiCA Regulation and Crypto ETNs
While MiCA primarily focuses on regulating crypto-assets not covered by existing financial services legislation, it may indirectly impact crypto ETNs:
- Increased transparency and disclosure requirements for crypto-assets may enhance the underlying asset quality of ETNs.
- Stricter authorization and supervision of crypto transactions could lead to more stable and reliable crypto markets.
- Enhanced consumer protection measures may increase investor confidence in crypto-related products.
Explaining ETP’s
ETP (Exchange Traded Product) is an umbrella term that encompasses various listed financial products, including ETNs (Exchange Traded Notes). The main types of ETPs include:
- Exchange Traded Funds (ETFs): These are the most common type of ETP, pooling investments to track indices, commodities, or other assets.
- Exchange Traded Notes (ETNs): These are debt securities issued by financial institutions, similar to corporate bonds but designed to track a specific benchmark.
- Exchange Traded Commodities (ETCs): These are asset-backed securities that track the performance of commodities or commodity indices.
The key characteristics that define ETPs include:
- Exchange-traded: They can be bought and sold throughout the trading day on stock exchanges.
- Tracking performance: ETPs are designed to mirror the performance of underlying assets or benchmarks.
- Diversification: Many ETPs offer exposure to a basket of assets, providing diversification in a single security.
- Transparency: ETPs typically disclose their holdings regularly, making it clear what investors own.
In summary, while ETPs encompass a range of products, including ETFs, ETNs, and ETCs, they do not include all listed financial products. The term is specific to investment vehicles designed to track and provide exposure to particular assets or indices in a tradeable, exchange-listed format
Investor Suitability
Crypto ETNs may be attractive for:
- Institutional investors seeking regulated crypto exposure.
- Retail investors who want to diversify their portfolio with crypto assets without directly holding cryptocurrencies.
- Investors looking for a more familiar and potentially safer way to invest in the crypto market through established exchanges.
Investors who should exercise caution or avoid crypto ETNs include:
- Risk-averse individuals uncomfortable with the high volatility of cryptocurrencies.
- Investors lacking understanding of the crypto market and its underlying technologies.
- Those seeking short-term gains, as crypto markets can be unpredictable and subject to sudden price swings.
It’s crucial for all investors to thoroughly research and understand the risks associated with crypto ETNs before investing. While these products offer exposure to the crypto market through regulated exchanges, they still carry inherent risks due to the volatile nature of cryptocurrencies.
