Understanding Crypto Exchange-Traded Products
What Are Crypto ETPs?
Exchange-traded products (ETPs) are regulated financial instruments traded on stock exchanges, offering exposure to underlying assets like cryptocurrencies. The three primary types are:
- Exchange-Traded Funds (ETFs): Investment funds tracking indices or assets.
- Exchange-Traded Notes (ETNs): Unsecured debt securities linked to benchmarks.
- Exchange-Traded Commodities (ETCs): Debt instruments backed by physical assets (e.g., gold, crypto).
Since the first Bitcoin ETP launched in Sweden (2015), the sector has expanded to ~180 products globally, with assets under management (AUM) growing 120% YoY to $12.73B by November 2023 (ETFGI).
Why Invest via Crypto ETPs?
- Accessibility: Simplifies crypto exposure for retail/institutional investors.
- Regulation: Compliant framework vs. direct crypto ownership.
- Liquidity: Traded like traditional securities.
Drawbacks: Higher fees, limited trading hours, and counterparty risks.
Crypto ETP Structures & Key Players
Product Types
- Physical ETPs: Directly backed by crypto holdings (e.g., CoinShares, 21Shares).
- Synthetic ETPs: Use derivatives (e.g., XBT Provider).
- Spot vs. Futures ETFs: Physical ETFs hold assets; futures ETFs track contracts.
Top Crypto ETPs by AUM (2024)
| Product | Issuer | Asset | AUM (USD) | Type |
|------------------------|--------------|----------|-----------|------------|
| ProShares BTC Strategy | ProShares | Bitcoin | 1.68B | Futures ETF|
| Purpose Bitcoin ETF | Purpose | Bitcoin | 1.2B | Spot ETF |
Innovation Trends:
- Staking ETPs: Earn yield (e.g., 3iQ’s Ether Staking ETF).
- Leveraged/Short Products: Hedge or amplify exposure.
- Multi-Asset Baskets: Diversified crypto indices.
Global Regulatory Landscape
Americas
- Canada: First BTC spot ETF (2021); staking ETH ETF approved (2023).
- USA: Only futures ETFs approved; 11 spot Bitcoin ETF applications pending (BlackRock, Grayscale, Fidelity). Expected approval by January 2024.
Europe & UK
- UCITS Compliance: Limits single-asset ETFs (max 10% allocation).
- UK: Crypto ETPs restricted to professional investors.
Asia
- Hong Kong: Approved BTC/ETH futures ETFs (2022); spot ETF applications expected in 2024.
Key Stakeholders
| Role | Examples |
|---------------------|-----------------------------------|
| Issuers | 21Shares, VanEck, WisdomTree |
| Custodians | Coinbase, Fidelity Digital Assets|
| Market Makers | Flow Traders, GHCO |
Future Outlook: 2024 Trends
- Fee Wars: Competition drives lower costs (e.g., Fidelity’s 0.39% fee).
- Institutional Adoption: BlackRock’s marketing could boost mainstream acceptance.
- Chain-Up Integration: ETPs may leverage DeFi (e.g., 21.co’s Index Coop partnership).
FAQ
Q: How do crypto ETPs differ from owning crypto directly?
A: ETPs offer regulated exposure without wallet management but may incur higher fees.
Q: Which regions lead in crypto ETP innovation?
A: Europe (physical ETPs), Canada (spot ETFs), and the USA (pending spot ETFs).
Q: Are staking rewards available via ETPs?
A: Yes—e.g., 3iQ’s Ether Staking ETF distributes rewards to investors.
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Note: This analysis excludes OTC closed-end funds like Grayscale’s products.