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The first Bitcoin (BTC<\/a>) futures exchange-traded fund (ETF) was launched in the United States back on October 19, 2021. Since then, a number of other cryptocurrency investment products have been launched in various markets.<\/p>\n That first ETF, the ProShares Bitcoin Strategy ETF, quickly <\/a>became one of the top ETFs of all time<\/a> by trading volume on its debut, and soon after, several other Bitcoin futures ETFs were launched in the United States<\/a>, providing investors with different investment options.<\/p>\n To Martha Reyes, head of research at cryptocurrency trading platform Bequant, these options are important. Speaking to Cointelegraph, Reyes pointed out that in traditional finance, ETFs have \u201cproved to be incredibly popular in recent years, with ETF assets expected to reach $14 trillion by 2024.\u201d<\/p>\n Reyes said that investors who have been on the sidelines of the market may now choose to invest in cryptocurrencies if they prefer the \u201clow cost, flexibility and convenience [of ETFs], especially as they then do not have to custody the crypto themselves.\u201d<\/p>\n Custodying crypto assets, Reyes said, can prove a \u201ctechnical barrier to some non-crypto natives.\u201d The launch of crypto ETFs may offer investors the type of diversification they want in their portfolios through crypto, although some may want to access the market \u201cvia baskets reflecting different trends in this rapidly evolving market.\u201d She added:<\/p>\n \u201cOthers prefer to be more hands on or have a combination of strategies. The important thing is that investors have options.\u201d<\/p><\/blockquote>\n Several options have, in fact, been launched over the last few weeks. United States-based firm WisdomTree has listed its cryptocurrency exchange-traded product (ETP), Crypto Mega cap Equal Weight ETP, on Euronext exchanges in Paris and Amsterdam.<\/p>\n Trading under the ticker symbol MEGA, the product is backed by physical cryptocurrencies including Bitcoin and Ether (ETH<\/a>) and is rebalanced quarterly. <\/a>WisdomTree also launched its WisdomTree Crypto Market<\/a> (BLOC) and WisdomTree Crypto Altcoin (WALT) ETPs in Europe.<\/p>\n Similarly, in December, Bitcoin Capital AG released two ETPs<\/a> on the SIX Swiss Exchange, offering investors exposure to Bitcoin and Ether. These products are actively managed by FICAS AG and are available to institutional, professional and private investors.<\/p>\n These products have so far been successful and more options are being launched on a regular basis, effectively boosting investors\u2019 options in the market. To some experts, these products are part of the next step cryptocurrencies need to take to be widely adopted.<\/p>\n To Reyes, participation in these investment products is so far \u201cprimarily institutional,\u201d especially in countries like the United States in which only futures products are trading. She said that retail investors \u201care cognizant of the added rollover costs of a future versus a spot ETF, meaning underperformance versus the underlying.\u201d<\/p>\n Reyes added that for \u201cwide retail participation, we would probably need to see a spot product.\u201d<\/p>\n Speaking to Cointelegraph Sui Chung, CEO of FCA-regulated crypto indices provider CF Benchmarks, said that cryptocurrency investment products are \u201csignificant drivers of mass adoption,\u201d and while the firm would \u201clike to see a wider choice of avenues\u201d the impact of these products could still be significant:<\/p>\n \u201cWe shouldn\u2019t underestimate the impact these products have in bringing new investors and capital to crypto assets and how this can accelerate long-term adoption.\u201d<\/p><\/blockquote>\n Karan Sood, CEO and managing director at Cboe Vest, an asset management partner of Cboe Global Markets, told Cointelegraph that increased participation from a diverse set of investors is \u201cgood for the market,\u201d as it \u201cincreases liquidity and helps build out the market infrastructure.\u201d<\/p>\n Sood said that before investing, investors should review their possibilities carefully as some products were initially launched to provide investors access to the cryptocurrency market, while others \u201ctry to provide a solution to Bitcoin\u2019s extreme volatility problem.\u201d<\/p>\n According to Sood, volatility is \u201cendemic to the crypto asset space,\u201d and sell-offs in which Bitcoin and other crypto assets lose over half of their value are fairly common, so much so that drops of over 20% are to be expected. He added:<\/p>\n \u201cHowever, what is new is the availability of funds that allows investors to access Bitcoin exposure with strategies designed to reduce the impact of severe sustained declines.\u201d<\/p><\/blockquote>\n These funds, he said, take the \u201cmanaged volatility set of investment strategies extensively used in conventional asset classes\u201d and apply them to Bitcoin futures to protect investors against the cryptocurrency\u2019s volatility.<\/p>\n This volatility is believed to be keeping some institutional investors on the sidelines and stopped regulators like the U.S. Securities and Exchange Commission (SEC) from finding ways to properly protect investors and accommodate for the innovation in the space.<\/p>\n To Chung, the cryptocurrency market has matured to the point there are now \u201ccore\u201d exchanges like Coinbase and Kraken that ensure fair and manipulation-free trading, so market manipulation should not be a problem. Regulated products are, nevertheless, preferable for institutions and more conservative investors.<\/p>\n Considering the lack of a spot Bitcoin ETF in the U.S. and the disadvantages of futures-based products mentioned by Reyes above, retail investors are left either gaining exposure from other markets or buying crypto directly. These options are, nevertheless, not optimal for some.<\/p>\n Buying cryptocurrencies on the spot market has been the go-to strategy for most crypto investors over the last few years, but more conservative investors who may want to diversify their portfolios may be uncomfortable with the lack of regulation in the market.<\/p>\n As Cboe Vest\u2019s Sood put it, when compared to the \u201ctrading and custody infrastructure that exists for conventional assets such as stocks, bonds and funds, there is little in the form of regulation.\u201d This lack of regulation, he said, has been \u201cexemplified by the persistent news about the loss of keys, hacking of systems and fraud in trading in crypto assets.\u201d<\/p>\n Bitcoin futures investment products operate under the Commodity Futures Trading Commissions\u2019 regulations, while mutual funds with exposure to Bitcoin are actively managed by regulated entities with a rich history of providing strong investor protections.<\/p>\n Taking into account these differences, Sood pointed out that \u201cunless there is a change in the regulation of spot Bitcoin, there is a sound basis for BTC futures-based investments but not for spot-based investments.\u201d<\/p>\n Notably, spot Bitcoin ETFs are available in various jurisdictions. In December, Fidelity Canada launched one such product<\/a> called the Fidelity Advantage Bitcoin ETF. It trades on the Toronto Stock Exchange and is denominated both in Canadian and United States dollars.<\/p>\n Sood said that regulations in the U.S. may be a burden for investment product manufacturers but have \u201cdelivered substantial value and protections to U.S. investors over the years.\u201d These protections, he said, have \u201cstood the test of time over decades\u201d and, as such, investors should opt for products regulated in the country if possible.\u00a0<\/p>\n While futures-based investment products may not be optimal for retail investors, Sood argued that some sophisticated products have been launched to offer investors the cryptocurrency exposure they may be looking for. He concluded:<\/p>\n \u201cInvesting in funds overseas may expose U.S. investors to undue unique risks and tax burdens.\u201c<\/p><\/blockquote>\n Bequant\u2019s Reyes pointed out that cryptocurrency ETFs have less than $20 billion in assets under management across 50 products, which means we are \u201cstill in the early stages of the adoption\u201d of these products.<\/p>\n Nevertheless, she sees the approval of a futures ETF and rejection of a spot ETF as \u201cinconsistent,\u201d as in other jurisdictions, spot ETFs are already being traded. Making matters worse, a futures product \u201cprimarily benefits institutional investors as it is too expensive for individual investors.<\/p>\n Grayscale Investments has notably fired back at the SEC for rejecting VanEck\u2019s spot Bitcoin ETF application, issuing a letter arguing the SEC is wrong to reject such products<\/a> after approving several Bitcoin futures ETFs.<\/p>\n CF Benchmarks CEO Sui Chung said that while futures products are regulated instruments with oversight from the CFTC, it \u201cisn\u2019t so clear cut for spot Bitcoin,\u201d and the SEC has a challenge in balancing its enforcement mandate with what U.S. investors want.<\/p>\n However, Chung noted that Bitcoin futures ETFs have already \u201csparked an irreversible change\u201d as they are available \u201cto every single member of the investing public in the world\u2019s deepest capital market.\u201d<\/p>\n Markets, he said, haven\u2019t experienced significant disruptions and \u201cthe sky hasn\u2019t fallen in,\u201d meaning that we \u201chave passed the point of no return.\u201d To Chung, firms who can offer investors ETFs that can help diversify and grow their portfolios \u201cwill be the winners.\u201d<\/p>\n A Bitcoin spot ETF could make cryptocurrencies more accessible but to the above experts, the crypto ETF is about more than a product with physical exposure \u2014 it\u2019s about making cryptocurrency exposure more accessible.<\/p>\n To Reyes, futures ETFs trading in the U.S. are a \u201ctrial run in eventually approving a spot ETF.\u201d Such an ETF, she concluded, would be greatly beneficial:<\/p>\n \u201cA spot Bitcoin ETF would fuel mainstream retail adoption of Bitcoin further. Some investors prefer the ease of accessing the market this way rather than through dedicated crypto exchanges.\u201d<\/p><\/blockquote>\n Reyes welcomed regulation, noting that the more regulated fiat-to-crypto on-ramps there are the better, as these platforms can help signal regulatory concerns are easing, further driving up demand for cryptocurrencies.<\/p>\n Chung said that cryptocurrency investment products can lead to mass adoption by ensuring that investors deal with less friction when entering the market, as it may be easier to buy an ETP via an existing brokerage account than to open an account at a cryptocurrency trading platform:<\/p>\n \u201cWe don\u2019t want to be dogmatic about how people invest and learn about crypto and its possibilities, our job is simply to open up as many avenues as possible and drive adoption.\u201d<\/p><\/blockquote>\n While it isn\u2019t clear when the SEC will approve a Bitcoin spot ETF or whether existing solutions are enough for more conservative investors to make a move, new investment products are making it easier for investors to gain exposure to the space.<\/p>\n Over time, the trend should continue and new products will launch, allowing cryptocurrencies to fully develop in the market as a new asset class that could help hedge against inflation or economic downturns<\/a>.<\/p>\n<\/div>\nInvestment products and adoption<\/h2>\n
Early stages for crypto investment products<\/h2>\n
Making crypto more accessible<\/h2>\n