Bitcoin Exchange Traded Products (ETP) from 21Shares - easy exposure to the new digital commodity
For many investors who are interested in crypto assets, whether they are companies, institutional financial investors, or private investors, it is quite conceivable to invest in crypto assets. Nevertheless, many are still hesitating with the decision due to certain obstacles. These include the custody of crypto assets and the access to crypto exchanges required for the acquisition. In addition, many investors do not want to spread their investments across different custody accounts or banks and are overall very reluctant to change their previously established system. Especially in times of low to negative interest rates and a seemingly inflated stock market combined with an unprecedented amount of money being pumped into the market by central banks, the benefits of investing in bitcoin have become harder to ignore. A reason for this is that bitcoin has shown a spectacular performance over the past 12 months despite the COVID-19 pandemic, and it is progressively considered to be the new digital gold. Also, the appearance of new opportunities to invest in this emerging asset ensures that interested investors do not have to change their habitual practices. In other words, there are investment opportunities in bitcoin that do not require the typical necessary measures such as access to a crypto exchange or the issue of safe custody. However, for this to happen, the traditional financial world and the world of crypto assets must be bridged. One such provider that can facilitate this is 21Shares. Their ETPs (Exchange Traded Products) give interested investors the opportunity to participate in the success of bitcoin and other selected crypto assets without ever having an account on a crypto exchange or owning a wallet. 21Shares’ ETPs can be purchased with ISINs (international securities identification numbers) at traditional exchanges. Ultimately, all sides will benefit from this development, both the traditional investors and the providers as well as the entire crypto market. The fact that interested investors can easily integrate bitcoin into their portfolio provides exposure to an alternative and promising asset class. The crypto market also benefits from this development because new investments of such kind make the crypto market and its different assets accessible to a broader and capital-strong group of investors. This, in turn, leads to increased liquidity which enables the crypto market to grow further. Offers from providers like 21Shares are not alluring for private investors only. That is, companies that want to follow the example of Tesla and those who wish to protect themselves against rising inflation by investing in bitcoin are another large target group. For them, listed crypto products offer an elegant and easy way to make investments with exposure to cryptocurrencies. This development and further considerations regarding this topic will be discussed in the following article. First, the definition of ETPs will be clarified, then the rationale behind bitcoin’s appeal as an investment option along with the reason an exchange-listed financial product with bitcoin as a basis is a promising step will be elaborated on.
What is an Exchange Traded Product?
In order to clarify the terminology in relation to the following topic, we will focus on the ETPs already mentioned in the abstract. It may also be worthwhile to define both ETN and ETF and compare the two terms.
Firstly, ETP is the abbreviation for exchange-traded products, which are secured, non-interest paying debt instruments designed to replicate the performance of an underlying asset. In the case of 21Shares, the ETPs imitate the performance of crypto assets, such as bitcoin. In short, an ETP is a financial instrument that is traded like stocks on an exchange. They provide investors with a cheap and safe way to diversify their portfolio and participate in a variety of underlying assets. There are three subgroups under the collective term ETP. They are: ETFs (Exchange-Traded Funds), ETCs (Exchange-Traded Commodities & Currencies), and ETNs (Exchange-Traded Notes). ETFs are investment funds that are traded as single security on an exchange. Their objective is to track an underlying index, such as the Deutsche Aktien Index. ETCs are non-interest-bearing debt securities. They allow investors to invest in individual commodities or currencies. In addition, ETCs are often backed by the physical asset which builds real exposure to the asset represented. Finally, ETNs are non-interest paying debt securities that also track the performance of an underlying index or underlying asset. However, unlike ETFs or ETCs, no real asset is held with ETNs.
Simplified access to bitcoin for investors
Based in Zug, Switzerland, 21Shares was founded in 2018 and is dedicated to issuing ETPs and other financial products tied to the performance of crypto assets such as Bitcoin (BTC) and Ethereum Ether (ETH). These are exclusively physically-backed ETPs with exposure to major cryptocurrencies. The leading crypto manager in Switzerland is the first company in the world to make a crypto-financial product public. The company aims to increase the mass adoption of crypto assets. It wants to provide a more transparent and secure access to the still young but promising digital asset class. Furthermore, their crypto products can assist interested investors with little knowledge and expertise about the technical aspects of crypto assets to discover a safe and simple way to invest in digital assets such as bitcoin. The bitcoin ETP, called ABTC (see Figure 1), offers all the advantages of traditional exchange-regulated financial products and promotes the investment in the most popular cryptocurrency without buying and storing the bitcoins themselves, which is similar to buying a stock. Investors do not have to buy bitcoin themselves on crypto exchanges they are not familiar with. Instead, they can use known and trusted channels such as their bank or broker. In particular, the handling of crypto-assets and the safekeeping of private keys thus fall away.
Moreover, all custody is handled by 21Shares and its partners; and in the case of ABTC, it is handled by the renowned crypto exchange, Coinbase. A unique feature of the ETPs offered by 21Shares is that strictly speaking, they are ETCs. Hence, the actual value, in this case, is that bitcoin is bought by 21Shares on the exchange at the very moment a customer buys a unit of the ABTC. This means that bitcoins are actually bought and the ABTC indeed becomes the world's first physically-backed bitcoin ETP.
Therefore, it is now possible for investors to participate in the price development of bitcoin via their usual bank or broker on a traditional stock exchange by purchasing a classic financial product. They can sell it at any time on a liquid market and know that the value is fully covered by the real acquisition of bitcoin.
Figure 1: ABTC - 21Shares Bitcoin ATP, https://21shares.com/product/abtc
With this, 21Shares is opening up the crypto market and bitcoin, particularly to yet another new group of investors. Many investors are interested in bitcoin but they do not have the necessary technical know-how or are reluctant to change their existing investment system with a portfolio at a bank. However, with the investor’s growing interest in bitcoin, a product such as an ABTC represents the essential missing link. Many companies would like to protect themselves against rising inflation, diversify their portfolios, or simply look for alternative asset classes; and as the digital commodity of the future, bitcoin is currently becoming more and more appealing for many companies. Pioneers such as Tesla and Microstrategy have already taken the lead and included bitcoin in their balance sheets. Unfortunately, in many countries, regulation continues to lag behind meaning that for some highly interested investors, the efforts, hurdles, and uncertainties are still too great. However, these concerns will dissipate with the new bitcoin ETPs.
There is more than one way for entrepreneurs and investors to gain exposure to one of the most exciting investment opportunities of this decade. 21Treasury, a bitcoin and digital asset consulting firm is dedicated to helping companies explore this new asset class.
It is promising that the world of conventional investment forms can now be connected with the world of digital assets. Investors can smoothly and elegantly diversify their existing portfolios by adding crypto assets. Comparing the performance of bitcoin over the past few months with that of other asset classes or popular treasury stocks, it is clear that bitcoin has performed significantly better. Thus, companies can now also profit from this performance. Bitcoin as an investment holds the prospect of a significantly more interesting return in addition to acting protection against rising inflation. Figure 2, for example, shows the performance of bitcoin, gold, and Microstrategy. The date on which US companies (with Microstrategy in the lead) started to include bitcoin in their balance sheets is marked in the figure. It is clear that both bitcoin and the Microstrategy stock itself have performed considerably better than gold, which is considered a store of value itself. It is important to note that the price development of bitcoin is only at its beginning despite the recent rally. If Bitcoin is evaluated as digital gold and the market capitalization of normal gold ($10T) is taken into account, the price of Bitcoin with a current market capitalization of $1T still has great potential for growth.
In times of global uncertainty due to a worldwide pandemic, long-term negative interest rates, and relentless flow of money from the central banks, it is important for private investors and companies alike to seek measures that can protect their purchasing power from rising inflation in the long term.
For these reasons, bitcoin is increasingly gaining investors’ attention. More and more institutional investors and companies are interested in bitcoin as a store of value. Of course, for many, bitcoin and the underlying blockchain technology remain a difficult subject to grasp. Especially in light of the many corollaries that invest in bitcoin entails. Investors need to think about new forms of storage and look at new types of crypto exchanges. In this regard, solutions such as those offered by 21Shares are important as they create an easy and secure way to access this thrilling development in the financial and technology sectors. As a result, investors can diversify their portfolios without having to take any special measures.
The radical approach of using blockchain and bitcoin to cut out the infamous middleman, in this case, the banks, is daring. As custodians and long-time partners of companies and investors, banks continue to be indispensable. In fact, they connect the two worlds, but solutions like those presented in this article are often preferred. This also means that a large number of non-digital natives will no longer be excluded from the exciting crypto market as it becomes more accessible.
Figure 2: Performance of Microstrategy stock (purple), Bitcoin (orange), and Gold (turquoise) after US corporations began buying bitcoin on the 11th of August 2020, @woonomic
Not so long ago it was unimaginable that institutional investors and large companies would include bitcoin in their balance sheets. Thus, one cannot help but acknowledge that digital assets, in whatever form, are making their way into the big league. Looking at the "bitcoin on the balance sheet" pioneer Michael Saylor of Microstrategy or Elon Musk of Tesla, one will notice that bitcoin is not only on the agenda at events like the “Association of Corporate Treasurers” (ACT), but also that many other companies are discussing this topic. In addition to the aforementioned examples, there are already many other companies, hedge funds, pension funds, and large renowned universities that have also already purchased bitcoin.
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21Treasury offers comprehensive services for interested companies and investors to explore bitcoin, other digital assets, and even Blockchain and other Distributed Ledger Technologies (DLT). In times of increasing inflation due to quantitative easing and low or negative interest rates, companies are steadily realizing the need to rethink their treasury strategies in order to prevent their capital from debasing. Bitcoin and other digital assets have seen a massive influx of corporate and institutional capital which has been partly due to their store of value features. Thus, more and more companies are considering following this approach. Subsequently, this raises the need to understand this new digital asset class.
In addition to thorough explanations and advice regarding bitcoin and other digital assets, 21Treasury offers assistance in exploring Bitcoin investment vehicles and regulatory aspects that need to be considered when investing in bitcoin.
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