When bitcoin first hit the mainstream media in 2011 when Wired covered the rise of the defunct dark web marketplace Silk Road, it was hard to imagine that the digital currency used to buy drugs on the Internet could become a recognized alternative investment asset that high-net-worth individuals, private banks, and hedge funds are investing in.
In this guide, readers will discover a list of regulated investment vehicles that they can invest in to add crypto or blockchain exposure to an investment portfolio without having to buy digital currencies or tokens.
Regulated Bitcoin Futures
Arguably, the most notable regulated cryptocurrency-based financial products are the Bitcoin futures that are trading on the CME and the CBOE.
Since December 2017, U.S. investors can bet on the price of bitcoin without having to buy and store the underlying asset. While the initial Bitcoin futures trading volumes were low on both exchanges, throughout 2018, investor participation increased substantially as reported by BTCManager in October 2018.
Currently, investors looking to trade in the bitcoin futures market can choose between the CME’s Bitcoin futures (BTC) and the CBOE’s Bitcoin futures XBT. To trade Bitcoin futures, investors will need to use a broker that has agreed to trade BTC or XBT futures.
More bitcoin futures offerings are expected to follow from ICE’s new cryptoasset venture Bakkt and Nasdaq.
Bitcoin Exchange-Traded Notes
The first cryptocurrency-based financial products, traded on a regulated exchange, were the Bitcoin Tracker One and Bitcoin Tracker Euro launched by XBTProvider on the Stockholm Stock Exchange in 2015. Since then, the exchange-traded notes provider has also added Ethereum trackers to its product range.
Currently, European investors can trade the Bitcoin Tracker Euro and the Ether Tracker One, either in EUR or in SEK, through brokerages that provide access to securities.
In the financial markets, certificates are investment products that enable retail clients to gain exposure to assets or asset classes that would otherwise be difficult to gain access to. Some of the most popular certificates, for example, are for commodities such as gold or silver and on equity indices. During the crypto boom of 2017, Bitcoin certificates emerged to meet the growing demand for regulated financial products that have cryptocurrencies as their underlying assets.
Two popular certificates trading on European stock exchanges include Vontobel’s Open-Ended Participation Certificate on Bitcoin (VL6LBC), which trades on the Börse Stuttgart in Germany and Leonteq’s Tracker Certificate on Bitcoin (BITETQ), which trades on the Swiss Exchange (SIX) in Switzerland.
Both products enable retail investors to buy an investment vehicle that provides them with indirect exposure to the digital currency bitcoin. The key differences between the two certificates are that Vontobel’s Participation Certificate on Bitcoin is denominated in euros while Leonteq’s Tracker Certificate on Bitcoin can be purchased either in USD, euros, or Swiss francs and that Vontobel’s certificate is open-ended while Leonteq’s matures in 2020.
Leonteq has also issued the Swissquote Bitcoin Active Index Tracker Certificate (SQXBTQ), which is denominated in USD and has a redemption date of November 17, 2020, as well as a Tracker Certificate on Bitcoin Cash (BCHUTQ) and the Swissquote Multi Crypto Active Index Tracker Certificate (SQCRTQ) that has a basket of cryptocurrencies as underlying assets.
The New Blockchain Certificate
On February 14, 2019, Block Asset Management announced the launch of its new Blockchain Multi-Strategy Certificate that will be listed on the Vienna Stock Exchange. This investment product is a tracker certificate on Block Asset Management’s Blockchain Strategies Fund SCSP, the worlds’ first fund of funds focusing on blockchain technology.
According to the company press release, the U.S. dollar-denominated certificate’s underlying fund invests in a portfolio of cryptoassets and blockchain funds using its “unique five-prong investment approach,” which includes tracking, trading, lending, ICO/STO funds, and mining.
While many are still eagerly awaiting a Bitcoin ETF, investors can already invest their funds into a range of blockchain ETFs that have been launched in the last 18 months.
Currently, there are five notable crypto ETFs listed in the U.S. and Canada that both retail and institutional investors can purchase to add blockchain exposure to their portfolios.
- First Trust’s First Trust Indxx Innovative Transaction & Process ETF (LEGR) which “tracks the performance of exchange-listed companies across the globe that are either actively using, investing in, developing, or have products that are poised to benefit from blockchain technology.”
- Amplify’s Amplify Transformational Data Sharing ETF (BLOK) that invests in listed companies that have a focus on blockchain technology and other “transformational data sharing technologies.”
- The Innovation Shares NextGen Protocol ETF (KOIN) is a tracker fund that mimics the Innovation Labs Blockchain Innovators Index, which uses AI to choose companies that are involved in the development of blockchain technology.
- Reality Shares’ Reality Shares Nasdaq NexGen Economy ETF (BLCN) is a passively-managed fund that invests in enterprises “developing, researching, or deploying blockchain technologies.”
- Finally, there is the Reality Shares Nasdaq NexGen Economy China ETF (BNCA), which, as BTCManager reported in June 2018, launched to provide investors with exposure to Chinese blockchain companies.
The more financial products that are launched with cryptocurrencies as underlying assets, the more new investor money should – in theory – flow into the digital asset markets.
The fact that there are investment vehicles targeted at both retail and institutional investors also suggests that once the next crypto bull market comes, the part of the global investment community that is still hesitant about investing directly in digital assets will have the opportunity to jump on the crypto bandwagon through a range of regulated investment vehicles.