Asset manager WisdomTree has shaken up Europe’s cryptocurrency tracker market with the launch of a new bitcoin product that undercuts competitors by more than half.
On December 3, WisdomTree listed an exchange-traded product (ETP) called BTCW on the Swiss Stock Exchange with an annual fee of 0.95 percent.
Other European firms offering cryptocurrency ETPs charge investors substantially more.
Swedish-domiciled firm XBT Provider, owned by CoinShares, offers tracker products in bitcoin, ether, litecoin and ripple, each for an annual fee of 2.5 percent.
Amun AG, a Swiss firm, offers ETPs tracking bitcoin, bitcoin cash, litecoin, ethereum, ripple and exchange token BNB, also for a 2.5 percent annual charge.
WisdomTree evolved from a magazine publisher to an index firm before entering the US exchange-traded fund (ETF) business in 2006.
The firm expanded its European operations in 2017 with the purchase of ETF Securities. It has a reputation for innovation, having specialised early on in funds tracking non-traditional indices.
WisdomTree’s Swiss launch highlights the different approaches among global regulators when it comes to cryptocurrency investment products.
In the US market several firms, including WisdomTree’s ETF market competitor Van Eck, the Winklevoss Bitcoin Trust and Bitwise, have been trying unsuccessfully for years to obtain approval to launch bitcoin ETFs from the local securities market regulator, the SEC.
The SEC has justified its refusal by citing concerns about the lack of adequate market surveillance mechanisms on cryptocurrency exchanges and the resulting risk of market manipulation.
The UK securities market regulator, the Financial Conduct Authority, said this summer it wants to stop the sale of cryptocurrency derivatives, including options, contracts for difference (CFDs), and exchange-traded notes and products (ETNs and ETPs) to retail clients.
Van Eck has recently launched a physically backed bitcoin tracker product in the US, tradeable off-exchange and for sale to institutions only.
In a press release, SIX Swiss Exchange emphasised that WisdomTree’s new bitcoin tracker does not benefit from the standard protections offered to those buying collective investment schemes like funds.
“An ETP is a collateralised, non-interest-paying bearer debt security…traded as well as redeemed on a continuous basis,” said SIX.
“Collateral is deposited with a third party and amounts to at least 100% of the outstanding amount.”
“Unlike ETFs, an ETP is no collective investment scheme in the sense of [Switzerland’s] Federal Act on Collective Investment Schemes (CISA) and with that is not supervised by FINMA. This product is not CCP-eligible,” said SIX.
Alexis Marinof, WisdomTree’s European head, said: “We are excited to bring investors secure access to this developing asset class. We have seen enough to believe that digital assets, like bitcoin, are not a passing trend and can play a role in portfolios.”
“The introduction of cryptocurrencies in an ETP structure will enable investors to find new ways to introduce digital assets into portfolios.”
ETFs and ETPs can be purchased via online brokerage accounts and in long-term savings plans, such as pension plans or tax-advantaged investment accounts. These savings plans are typically unable to invest in cryptocurrencies directly.
However, when investors buy cryptocurrencies via an ETP, they are relying on an intermediary to store their digital assets safely.
This is a riskier undertaking in cryptocurrencies than in traditional securities markets. In bitcoin, for example, anyone with knowledge of a private key can spend the associated bitcoin.
WisdomTree says it has appointed Swissquote Bank Ltd as its digital asset custodian at launch and will add Coinbase as a second custodian.
“These specialised custodians employ elaborate physical and digital security procedures and cutting-edge technology to safely generate keys, encrypt data and create and verify digital signatures,” the firm says.
The cryptocurrency trackers offered in Europe by WisdomTree’s competitors, XBT and Amun, are also debt securities, though they offer different forms of backing.
XBT Provider’s cryptocurrency ETPs are guaranteed by CoinShares (Jersey) Limited, while a sister company within the CoinShares group, GABI Trading Limited, promises to hold enough digital assets to back the value of the trackers, measured from time to time.
However, investors in XBT ETPs do not have direct legal recourse against GABI.
Amun says the assets of its cryptocurrency ETPs are fully backed by digital assets held in cold storage at a specialist custodian.
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