ETF essentials · 2 minute read
Crypto exchange-traded products: what should investors understand?
The short answer
A crypto exchange-traded product provides exposure to a cryptocurrency through a security traded on an exchange. In Europe, these products are generally ETPs or ETNs rather than UCITS ETFs and can involve extreme volatility and structural risk.
Why it matters
Buying a crypto ETP avoids managing a personal digital wallet, but it does not remove the risk of the underlying cryptocurrency.
Important features can include:
- Whether the product is physically backed or uses derivatives
- How the crypto assets are held and safeguarded
- Issuer and counterparty risk
- Fees and the bid–ask spread
- Trading hours that differ from the 24-hour crypto market
- The possibility of large and rapid losses
The market price can also differ from the value of the crypto assets represented by the product.
A simple example
Bitcoin trades continuously, but a European exchange-listed product trades only during exchange hours. A large overnight crypto move may cause the product to open sharply higher or lower, possibly with a wide spread.
What to check
- Is the product an ETF, ETN or another ETP?
- What asset or index does it follow?
- How is the crypto exposure secured or collateralised?
- Who issues the product and who safeguards its assets (the custodian)?
- What happens if an intermediary fails?
- Could you tolerate a very large loss?
Key term explained
An ETN, or exchange-traded note, is a debt security whose return is linked to an asset or index. Investors may be exposed to the issuer’s ability to meet its obligations.
Exchange trading can make access easier. It does not make crypto exposure conventional or low risk.