Insights | 09.06.2020
BTCetc (Ticker symbol: BTCE) is the first centrally-cleared Bitcoin ETP available on Germany's largest stock exchange, Deutsche Börse XETRA. The BTCE Prospectus was approved by the German Federal Financial Supervisory Authority (BaFin).
The product is 100% physically backed and enables investors to gain exposure to Bitcoin, without the need to understand Blockchain technology and wallets. Because BTCE is a security, it can be used in the same way that stocks and bonds are used within your brokerage account - not only as collateral, but also for yield enhancement via transactions such as stock loan and repo. The Issuer keeps Bitcoin backing the product at a reputable, safe, regulated and insured depositary, namely BitGo Trust Company, Inc. It is virtually impossible to store Bitcoin in any safer way than how it is done by BitGo..An Easier Way to Invest in Cryptocurrency
Investing in BTCE is as simple as buying shares through your broker or bank. Unlike investing directly in Bitcoin, there is no need to engage with the technical challenges of setting up a cryptocurrency wallet to store Bitcoin. Your units of BTCE are safely held with your broker or bank, thus removing the risk of losing your investment due to a lack of knowledge of how cryptographic keys work.Invest in Bitcoin on a Regulated Exchange
BTCE is traded on XETRA, one of the largest exchanges in Europe. As Deutsche Börse is a regulated exchange, this means that investors can trade with confidence knowing that all market participants are strictly vetted and carefully monitored to prevent market abuse. The alternative is to buy Bitcoin on cryptocurrency exchanges, most of which are unregulated or do not have as strict security and compliance standards.Ample Liquidity
The issuer has partnered with world-class liquidity providers and authorised participants (APs) to ensure ample liquidity, resulting in tight spreads on-exchange and the ability to create or redeem units of BTCE on the primary marketRedemption for Bitcoin
BTCE can also be redeemed directly for Bitcoin. As an additional layer of protection for investors, every redemption transaction must be confirmed by the issuer and a reputable third-party administrator to ensure that no Bitcoin can be misappropriated due to misconduct or negligence on behalf of the issuerSafe Custody
The issuer stores the Bitcoin with BitGo Trust Company, a secure, regulated custodian, purpose built for holding digital assets. Strict KYC and AML standards ensure that the provenance of all cryptocurrency in custody has been vetted.
BTCE is issued by ETC Group and marketed and distributed by HANetf. Past performance is not an indicator of future performance, and when you trade ETCs your capital is at risk.Advantages of BTCE and Exchange Traded Crypto:
Buying and storing Bitcoin has not always been easy, and many investors have been sceptical or scared of getting involved given teething problems within the cryptocurrency market infrastructure.
Here’s how BTCE provides a safer, easier and more familiar experience for mainstream investors:
|Issue||BTCE: Exchange Traded Crypto|
|Accessibility||Buying Bitcoin requires the investor to set up an account with a so-called ‘Bitcoin exchange’, which can be a lengthy and time-consuming process. Such ‘exchanges’ are mostly unregulated entities and investors face increased risk of money laundering and market manipulation.||BTCE can be purchased on Deutsche Börse (XETRA), one of the largest stock exchanges in Europe in terms of both market capitalization and monthly trading volume. Virtually every broker in the world should have the ability to buy products traded on XETRA for its clients. Trading is constantly monitored by sophisticated software to detect and prevent market abuse.|
|Technical and Complex||Setting up a cryptocurrency wallet isn’t easy and preventing theft or loss of value due to other reasons (e.g. losing the keys) even harder. Blockchain wallets are not like credit cards or bank accounts, users of Bitcoin can’t chargeback fraudulent transactions or show up with their ID at the bank desk to recover access – what is lost is usually lost forever.||BTCE keeps Bitcoin backing the product at a reputable, safe, regulated and insured depositary called BitGo Trust Company. It is virtually impossible to store Bitcoin in any safer way than how it is done through BitGo. Deposits are insured by Lloyds of London against hacking and white-collar crime up to the value of $100 million. BitGo is a regulated trust and all Bitcoin is stored air-gapped in cold storage in their vaults|
Firstly, the Bitcoin market is very fragmented; it does not have a single recognized pool of liquidity or place of price discovery. Investors interested in purchasing big volumes of Bitcoin face access problems described above multiplied by the number of ‘Bitcoin exchanges’ they need to connect to in order to tap into an acceptably big pool of liquidity
Secondly, IT systems of many ‘Bitcoin exchanges’ are technologically inferior to the systems operated by established stock exchanges, and this fact makes top-notch liquidity provision very dicult or even impossible.
Finally, not every professional market-maker is participating on ‘Bitcoin exchanges. Market-makers face the same technical, access, legal and regulatory challenges and issues alongside with investors. For that reason, some market-makers are willing to provide liquidity only on regulated stock exchanges.
BTCE shares many benefits with traditional ETFs/ETPs – as it is exchange listed and supported by an ecosystem of market makers and APs (many of which would not be willing to provide liquidity in Bitcoin itself), there is guaranteed two-way pricing available throughout the trading day
The team behind BTCE have contracted multiple professional market-makers to translate fragmented Bitcoin liquidity into concentrated on-exchange BTCE liquidity. Through direct connection to the underlying asset via the create /redeem mechanism, BTCE can provide liquidity for both very large and very small trades, levelling the playing field between investors.
|Legal Restrictions||Some investors might not be allowed to buy or hold Bitcoin, due to restrictions imposed by the regulator or investment mandate||BTCE is a security. If you can buy and hold securities, you can buy and hold BTCE.|
|Regulatory Capital Restrictions||Bitcoin holdings might not qualify to be accepted as part of capital required by the regulator for various reasons (e.g. due to the fact that Bitcoin does not have any recognized closing price on stock exchange which allows to mark to market such holdings).||BTCE is a security and is traded on Deutsche Börse (XETRA). It is much easier to qualify holdings of BTCE as regulatory capital than holdings of Bitcoin.|
|Money Laundering Concerns||Bitcoin is a relatively new asset class, and it is dicult (but not impossible) to conduct due diligence and establish sources of funds. It is challenging for investors willing to invest in Bitcoin to establish with the necessary certainty that the Bitcoin they are buying is not proceeds of crime.||
Only Bitcoin screened with market leading chain analysis too makes it into BTCE custody backing the issued instruments. BTCE is a fully fungible product (which ensures superior liquidity), but investors wishing to create units of BTCE in exchange for Bitcoin (instead of purchasing it on regulated exchange) have either to be a regulated Authorised Participant (“AP”) themselves or have such AP represent them as an agent.
APs are licensed and regulated financial intermediaries, and as such are under very strict anti-money-laundering obligations. This means that investors buying BTCE securities can be sure that any Bitcoin they are getting exposure to (and which they can receive should they want to do so due to fungibility of the product) is clean.
|Settlement & Post Trade Risk||Parties buying Bitcoin are exposed to counterparty (settlement) and post-trade price risks. Your counterparty can go insolvent after receiving the investor’s part of the settlement (e.g. a ‘Bitcoin exchange’ going out of business while the investor has cash of Bitcoin deposit with it) or it may not honour the favourable price of a trade. Delivery-versus-payment arrangements for Bitcoin trades are not common, and central clearing of trades to eliminate the price risk is virtually non-existent. This risk is particularly evident in transactions involving frequent large volume Bitcoin settlements (e.g. lending using cryptocurrency as a collateral or lending of cryptocurrency itself).||BTCE is a security, which is eligible for central counterparty clearing by Eurex Clearing. You can settle trades in BTCE using the Delivery-versus-Payment mechanism of Clearstream system, which effectively eliminates any counterparty risk. Investors can also use well-established business processes for securities lending or using BTCE as collateral in order to facilitate, streamline and considerably de-risk any lending operations involving Bitcoin.|
|Banking and Investment Platforms||Most banks and platforms lack the infrastructure or desire to settle any money related to Bitcoin transactions.||BTCE is a security, and investors can expect considerable ease with their banks when dealing with BTCE instead of the underlying Bitcoin directly|
In twelve short years, Bitcoin has fundamentally altered the way we think about currencies and financial institutions, governments and businesses have accepted it as more than just an experiment. Bitcoin now facilitates real-world transactions every day and is beginning to be accepted by retailers both online and oine for payments. While no one can predict the future, Bitcoin has proved its utility and seems likely to find more supporters and applications as the market further matures. Now investors have the option to invest in Bitcoin, with the security of trading it on a recognised securities exchange.
Important: Cryptocurrencies are highly volatile. Your capital is at risk. The value of cryptoassets can go down as well as up and you can lose your entire investment. ETC Management Limited, its affiliates, and subsidiaries are not soliciting any action based upon the material presented above. The material does not represent or shall not be inferred as an offer or a recommendation to buy or sell a security, nor shall it be considered or treated as investment advice.
Insights | 09.06.2020