SIX to start trading cryptocurrency ETP next week
Meet HODL5, and see what makes it a potentially big deal in the cryptocurrency space.
Update: HODL5 is not an ETF. Rather, it's a different kind of ETP. All ETFs are ETPs, but not all ETPs are ETFs. It's still a type of fund that will be traded on an exchange though.
The world's first regulator-approved cryptocurrency exchange traded product (ETP) has been given the green light, Financial Times reports. Created by the Amun digital asset firm, the product will start trading on the Switzerland SIX exchange next week. SIX is the fourth largest exchange in Europe, according to Amun.
Bitcoin enthusiasts have been looking forward to a cryptocurrency ETF for a long time now, in the hope of welcoming a new influx of money from established markets. Their hopes have been consistently dashed so far though.
It remains to be seen whether this new exchange traded product will herald the bitcoin price rises that many are expecting to follow an ETF approval.
How the Amun ETP works
Exchange traded products are a type of financial product that gives traders easy access to certain indexes or asset classes. Some might simply track the price of certain assets, such as gold, while others might be more actively managed with the intention of producing better results.
These ETPs can then be bought and sold by themselves, backed by the assets they represent.
The Amun ETP is a cryptocurrency index and is an actively managed ETP. It's a basket currently consisting of 49.7% BTC, 25.4% XRP, 16.7% ETH, 5.2% BCH and 3% LTC, and it will rebalance these monthly to stay on top of the developing market. This selection gives broad exposure to the cryptocurrency markets as a whole so speculators don't need to pick winners and losers, while also targeting only the biggest projects to ensure the fund has deep liquidity for ease of trading.
The product itself is called HODL5.
So, as of next week, people will be able to trade HODL on one of Europe's largest established exchanges. And when they buy a HODL share, they're buying a share of the HODL5 basket of those five cryptocurrencies that Amun owns and is managing. For its trouble, and its bottom line, Amun will charge an annual management fee of 2.5%.
Good for bitcoin?
The first reason bitcoin or crypto ETFs are expected to be a boon for bitcoin prices is because an ETF typically needs to be backed by ownership of the asset(s) it's composed of. A gold ETF, for example, requires gold sitting in a vault somewhere. And a cryptocurrency ETP might require cryptocurrency sitting in a digital vault somewhere.
This means that if there's more demand for HODL, Amun might be purchasing more "physical" cryptocurrency, which will have its own market impacts.
The second reason is that ETPs are often geared towards enormous institutional traders, such as multi-billion-dollar pension funds that want to pick up a small crypto allocation for the benefits of additional diversification.
The idea is that crypto can be a regulated financial product with deep liquidity and relatively easy trading on existing traditional exchanges, which will make it much more palatable to these big traders if it can deliver reasonable returns.
It's worth noting that HODL5 is far from the only cryptocurrency exchange traded product. There have been many permutations of these for years now. What makes it different is that it's received a certain degree of regulatory approval in Switzerland and will be publicly trading on a large, established marketplace. This might see HODL5 get a lot of investment where similar products have failed to gain traction.
It will also help if HODL5 is a competitive product that can deliver reasonable returns and risk.
And according to Amun, it might be. HODL5 and its monthly-adjusted basket and its managed moving-average-tracking pricing structure have tended to outperform bitcoin and other individual cryptocurrencies themselves. And so it might be the kind of product that can attract new buyers to the cryptocurrency space.
"The Amun ETP will give institutional investors that are restricted to investing only in securities or do not want to set up custody for digital assets exposure to cryptocurrencies. It will also provide access for retail investors that currently have no access to crypto exchanges due to local regulatory impediments," said Amun co-founder and chief executive Hany Rashwan.
"This was born out of our frustration at seeing vast swathes of the world excluded from easily participating in the digital assets revolution," Rashwan said in an email to Bloomberg last month. "We want to make buying crypto as easy as buying a stock."
"After exploring this across 23 different exchanges and territories around the world, we settled on Switzerland," he explained. "We believe this to be the best jurisdiction for our base and intend, after launching our initial products on the Swiss exchange, to both launch additional products as well as dual-list across additional geographies and stock exchanges."
Disclosure: At the time of writing, the author holds ETH, IOTA, ICX, XLM and BTC.