May 06, 2022
Global Crypto ETP Market: State of Play
New Aussie crypto ETP investors join a sector that’s well established and fast-growing, with leading funds rooted in best practice on price integrity and reliability
With CBOE Australia in the headlines after joining the ranks of traditional venues providing access to digital assets, it has again become apparent that the existence of a well-established institutional crypto ETP market is a surprise to many participants.
For those new to this sector, it’s also important to note that a significant proportion of crypto ETP providers have opted to utilise CF Benchmarks’ tried and trusted (and FCA-regulated) Benchmark Methodology to underpin reference and NAV calculation prices. In other words, leading issuers have aimed for the highest standards of market integrity, accuracy and reliability from the get-go.
As a further catch-up aid for institutional crypto newcomers, here’s a round-up of the global state of play for digital asset ETPs.
In terms of issues the EU has been the most active crypto ETP region for some years. Research firm ETFGI estimated in March that listed exchange traded crypto securities in Europe had amassed $7bn in assets or 57% of the global crypto ETP industry. As well, ETFGI’s tally published this week of crypto exchange traded products designated as ETNs includes 77 listed on Deutsche Börse Group’s Xetra platform alone. The researcher notes Deutsche Börse is the market leader in European exchange traded crypto products with an average monthly order book turnover of more than €1bn in ETPs tied to digital assets. Europe’s most prolific crypto ETP issuers include WisdomTree in Europe, ETC Group and 21Shares. WisdomTree in Europe was among the earliest issuers to list a physically backed crypto exchange traded product, and also to do so with a regulated reference price against which indicative NAV is calculated.
WisdomTree Bitcoin, which uses CME CF Bitcoin Reference Rate (BRR) as reference price, was incepted in November 2019. WisdomTree Ethereum, referencing CME CF Ether-Dollar Reference Rate (ETHUSD_RR), was incepted in April 2021. The asset manager has subsequently gone on to list several more crypto ETPs in Europe, including baskets and single-asset issues. Its most recently launched funds are designed to track the price of Cardano, Polkadot and Solana, whilst WisdomTree EU’s growing list of public portfolio funds already comprises issues providing exposure to altcoins, mega-cap cryptos and a diversified large-cap strategy. WisdomTree in Europe continues to rely on CF Benchmarks’ regulated benchmark methodology for reference prices, and NAV and iNAV calculation prices for all of its exchange traded crypto funds.
The largest Latin American country was on its way to becoming a pivotal crypto ETP market when one of its leading crypto focused fund management firms, Hashdex Gestora de Recursos Ltda., listed the world’s first crypto ETF, Hashdex Nasdaq Crypto ETF on the Bermuda Stock Exchange, and subsequently on Sao Paolo’s B3 (as HASH11), in April 2021. CF Benchmarks is the calculation agent for the Hashdex Nasdaq Crypto Index (NCI) through its partnership with Nasdaq, Inc., which preceded the launch of numerous jointly branded crypto price benchmarks. Like these, NCI is based on CF Benchmarks’ regulated benchmark methodology, ensuring all subsequent exchange traded products that reference it are furnished with the most secure and reliable pricing. Hashdex has since continued its pioneering streak with the flotation of BITH11, ETHE11 , DEFI11 and WEB311. The BTC and Ether funds reference Nasdaq’s Bitcoin and Ethereum Reference Prices respectively, both devised and calculated by CF Benchmarks. WEB311’s daily NAV is calculated from our CF Smart Contract Platforms Index, whilst daily NAV of DEFI11, the first pure play DeFi ETF, is struck against CF DeFi Composite Index – Modified Market Cap Weight. Hashdex has also just made its first inroads into Europe’s crypto ETP market with Nasdaq Crypto Index Europe ETP, which listed on SIX Swiss Exchange, tracking a European closing-time version of NCI.
Meanwhile, Brazil’s other leading crypto fund manager, QR Asset has also listed a series of crypto ETFs on B3. Beginning with QBTC11 in June 2021, powered by BRR, QR then floated QETH1 in August, with NAV struck against CME CF Ether Dollar Reference Rate.
North America’s exchange traded crypto fund powerhouse is of course Canada. Despite 2022’s less sure-footed market price developments, Canadian-listed digital asset ETFs still garnered around US$4.2bn in net new assets in March alone, according to ETFGI data compiled by CF Benchmarks. Evolve ETFs, focused on disruptive innovation and specialised in thematic ETFs, is among the region’s market leaders. The group issued the first publicly traded physically backed Bitcoin ETF on TSX (Ticker: EBIT) in February 2021, powered by CME CF Bitcoin Reference Rate. Ether ETF (ETHR), followed in April of the same year, tracking CME CF Ether-Dollar Reference Rate. Evolve then opened up combined access to the two funds with Canada’s first multi-cryptocurrency ETF, Evolve Cryptocurrencies ETF (ETC) that September, utilising EBIT and ETHR as underlying funds and underpinned by CF Benchmarks’ methodology.
Australia’s market regulator, ASIC, and its key exchange, ASX, had signalled for over a year that they intended Aussie markets to be in the fast lane when it comes to exchange traded crypto products. Sure enough, late last year ASIC greenlighted the listing of crypto ETPs on its markets with guidelines derived from CF Benchmarks methodologies, policies and principles. The race was then on among top ETF providers to launch the country’s first crypto ETP. It was won last month by a partnership of Europe’s 21Shares and ETF Securities Australia. Listing on CBOE Australia on April 27, ETFS 21Shares Bitcoin ETF is now the first Australian ETF to invest directly in Bitcoin, whilst ETFS 21Shares Ethereum ETF is the first to invest directly in Ether. Meanwhile, Monochrome Asset Management remains a key contender to list further Aussie crypto ETPs after partnering with CF Benchmarks "to ensure the integrity of underlying assets contained within Monochrome product offerings”. The firm aims to utilise BRR to strike daily NAV.
Waiting for Washington
The glaring omission from the group of countries with fully regulated exchange traded crypto assets is of course still the United States. The first CME Bitcoin Futures-backed ETF launched with much fanfare in the U.S. last autumn, though it’s long been clear that for institutional investors seeking exposure to digital assets, a futures-based ETF is the second-best option. Unsurprisingly, CF Benchmarks has covered the long and convoluted path to a potential U.S. spot-based crypto ETF in some detail over the past year or so, and will continue to do so. The machinations of the main regulating protagonists over the matter are beyond the scope of this article, though well-recorded elsewhere.
Meanwhile, ETFGI notes Q1 2022 net inflows into global crypto ETFs and ETPs of $859m were much lower than inflows of $1.64bn in Q1 2021. Still, with 13 new digital asset ETPs launched in March alone, bringing assets gathered in the space—by 24 providers listing on 17 exchanges in 13 countries—since 2015 to $16.28bn, there’s little doubt that the sector remains in a high-growth phase.
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Read our empirical research on BRR: ‘An analysis of the suitability of the CME CF BRR for the creation of regulated financial products’