A first-of-its-kind investment product focused on ethereum is now open to investors on the Nasdaq Stockholm exchange.
Announced today, CoinShares, headed by former JPMorgan Chase trader Daniel Masters, is launching an exchange-traded note (ETN) for ether, the cryptocurrency that powers the ethereum blockchain. With the news, the ETN joins CoinShares’s original bitcoin ETN offering, launched in 2015, in bringing a well-used mechanism from traditional markets to the world of cryptocurrency.
ETNs function similarly to exchange-traded funds, except rather than give investors access to a basket of assets, they generally give investors exposure to just a single asset.
In this way, more conservative investors wary about putting their money into funds that invest in multiple cryptocurrencies (some very new and yet to prove their use case), can invest now in only ether or bitcoin, the two cryptocurrency projects with the most market traction.
A principal at CoinShares, Masters framed the company’s interest in ETNs as stemming from its belief that people should have “hassle-free exposure” to the largest cryptocurrencies by market capitalization.
Masters told CoinDesk:
“Bitcoin disrupts the functions of analog money and analog gold, and ether disrupts the function of the stock markets and the process of forming capital.”
The announcement is notable given that XBT Provider, which is wholly owned by CoinShares, currently holds a substantial cryptocurrency portfolio.
The firm recently announced a bitcoin position of 58,451 BTC — which, at current market prices, is worth over $250 million. (CoinDesk has seen a signed letter from CoinShare’s Hong Kong-based custodian attesting to the size of their position.)
As for what makes the product unique, Masters said the fund will differ from actively traded options in that it will be “100 percent passive.”
Prices between the ETNs and the underlying coins will be about 99 percent correlated, Masters said, meaning that since the ETNs are based on a derivative product, the price of the notes and ether may not be the same at all times. Investors in the product can realize their profits (or losses) by selling their ether ETN in the open market.
Masters further added that his firm’s ether-based ETN does not use any leverage. However, depending on which platform an investor uses to purchase the ETN, it may be possible to apply leverage through the investor’s broker.
This option generally hasn’t been available to investors purchasing ether and bitcoin on cryptocurrency exchanges, and shows the growing interest in the more sophisticated investment mechanisms that are prevalent with more traditional assets.
Only in Europe?
Still, with the ether ETNs only available on Nasdaq Stockholm, the mechanisms are being exclusively marketed to European investors.
Masters said this is for regulatory reasons, noting that anyone whose brokers had access to Nasdaq Stockholm will still be able to purchase the product.
Moreover, Masters told CoinDesk, that using a broker’s platform to purchase the ETN may allow investors to hold exposure to ether in a retirement account, which may, under certain circumstances, result in a tax-advantaged tax treatment for the ETN in certain jurisdictions.
Ethereum image via Shutterstock
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Disclaimer: This article should not be taken as, and is not intended to provide, investment advice. Please conduct your own thorough research before investing in any cryptocurrency.
Published at Wed, 11 Oct 2017 10:45:06 +0000