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Trading volume for the world’s first centrally cleared exchange-traded Bitcoin product has increased to levels normally only seen by the most popular European ETFs.
The average daily order book turnover for the BTCetc Bitcoin Exchange Traded Crypto (BTCE) on the German stock exchange amounted to 57 million euros in the first eleven days of January, as data from the German stock exchange show.
This was just € 1 million behind the most heavily traded product on the German stock exchange, the iShares Global Clean Energy Ucits ETF (INRG), and well ahead of the volume of all other 1,800 ETPs listed on the Frankfurt Stock Exchange.
The trading spurt – a sharp increase in December’s daily average of € 15.5 million, the previous record – follows a 10-fold rise in Bitcoin’s price since March to a high of $ 42,000 earlier this month, before some profits were returned.
Stephan Kraus, head of Deutsche Börse’s ETF segment, said the structure of the BTCE exchange-traded note, which removed regulatory concerns and counterparty risk when trading Bitcoin, “has made cryptocurrency investments more attractive to institutional investors,” who trade without having to set up a digital wallet infrastructure or use an “unregulated crypto platform”.
Deutsche Börse’s trading data shows a number of trades over € 30,000 that were unlikely to have come from day traders or other private investors.
Bradley Duke, co-founder and managing director of ETC Group, the issuer of BTCE, also believed that institutional investors would buy the cryptocurrency as a “safe haven”.
“Bitcoin has always had a fundamental wave in retail, people interested in technology, and it was viewed as a wild west investment. That has really changed in the last six months, ”he said.
“Coronavirus played a role in this. It seems like an attractive alternative to currencies that the stimulus packages may depreciate. The packages are needed, but there are real concerns that they could bring inflationary forces into play.
“We believe that institutions are duly participating in their portfolio as Bitcoin to hedge against the devaluation of major currencies.”
BTCE, with $ 433 million in assets and a 2 percent total expense ratio, is physically backed by Bitcoin. These are stored with BitGo Trust, a digital asset trust company based in Palo Alto, California.
On Wednesday, ETC listed similar ETNs in US dollars, pounds sterling and Swiss francs on the SIX Swiss Exchange. Mr Duke said more products would be launched “in the next few weeks” based on other cryptocurrencies and a crypto basket.
There were a number of similar launches in continental Europe, with VanEck and 21Shares also offering Bitcoin ETNs on Deutsche Börse. The Swiss Exchange now lists 34 products traded on crypto exchanges from six issuers.
However, the UK’s Financial Conduct Authority has banned the sale of derivatives related to cryptocurrencies, including ETNs, to retail investors because the underlying assets have “no reliable basis for valuation”.
The FCA added this week that anyone who invests in crypto assets “should be prepared to lose all of their money”.
On Wednesday, Christine Lagarde, President of the European Central Bank, called for global regulation of cryptocurrencies to combat their use in “totally reprehensible money laundering activities”.
For others, it is the often dramatic price fluctuations in cryptocurrencies that preclude broad acceptance by institutional investors.
“Because of their high volatility and the size of their previous drawdowns, cryptocurrencies are attractive for speculative investors, but they are neither a suitable alternative to safe-haven assets nor do they necessarily help diversify the portfolio,” said the strategists at UBS Asset Management Week.
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