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Fund managers are drastically reducing the cost of exchange-traded products to lure investors into the asset class amid the ongoing crypto crash.
Cryptocurrency specialist 21Shares, a Swiss group, has launched a new vehicle that tracks the price of bitcoin that undercuts rivals – and even its own flagships – in a bid to tempt investors as they try to resist in the bear market.
The launch comes amid a painful sell-off for all things crypto, with the price of bitcoin down 70% from its November highs of $19,430, and the market value of the top 500 crypto tokens having dropped to less than $1 billion from a high. of $3.2 billion.
The newly listed 21Shares stock has a total expense ratio of just 0.21%. This is below the last round of cost cuts when companies such as Fidelity and Global X offered bitcoin-linked products at 0.4-0.7%. It’s also an ocean away from the 1.49% fee charged by 21Shares’ existing $164 million flagship Bitcoin (ABTC) ETP.
“Some of our clients are more cost-sensitive than others, so we have worked diligently to develop what is, by far, the cheapest crypto ETP in the world,” said Hany Rashwan, CEO and Founder. from 21Shares. “We are focused on developing products for the bear market.”
However, the Zurich-based group’s Bitcoin Core ETP (CBTC) has a catch. Unlike some competitors, he will be able to lend some of his bitcoin inventory and would likely do so to help him make a profit despite the low fees.
Additionally, the proceeds will go to 21Shares rather than investors in the fund, as cryptocurrency ETPs do not fall under Europe’s Ucits fund regime, which imposes stricter limits on securities lending. Rashwan said he is not currently lending coins, but added: “It is very possible that it will be in the next month or two. We will lend opportunistically.
Rashwan said the loans would be over-collateralized, with the collateral – bitcoin, ether or USD Coin, a so-called “stablecoin” – equal to at least 115% of the loan value and marked at the prevailing market price two times a year. daytime. A stablecoin is pegged to a traditional currency like the dollar. Rashwan described the oversecured loans as “incredibly safe”.
David Trainer, managing director of investment research group New Constructs, said 21Shares’ loan structure “seems reasonable” but said risks remained from potentially defaulting borrowers.
“Most [crypto] falls and stays low, the more we are going to realize that some companies are overexposed,” he said. Singapore-based crypto hedge fund manager Three Arrows Capital became the latest high-profile victim of the credit crunch that swept through the digital asset market last week when it went into liquidation.
Rashwan said the launch was just the first installment of 21Shares’ “crypto winter sequel” designed to help investors ride out the bear market.
His plans include risk-adjusted crypto ETPs that will offer some downside protection in exchange for giving up some potential gains, “so the investor can have more confidence investing at this stage.”
The products, likely to cover bitcoin, ether and potentially some broader crypto indices, may bear similarities to buffered or defined equity ETFs, which are proving popular in the United States.
Despite the crypto crisis, moderate enthusiasm for related ETPs remains. The 126 global crypto ETPs monitored by TrackInsight have seen combined net inflows of $282 million so far this year. Their total assets stand at $5.9 billion.
Although 21Shares’ assets have grown from a peak of $3 billion in November 2021 to $1 billion, Rashwan said the total number of shares for his ETPs was at an all-time high, again meaning clean entries.
“[Crypto] will change the world and it’s here to stay. There are many investors, including institutional investors, who missed the last two bulls. We’re starting to see a lot of institutional investors stepping in and seeing if the time is right. »
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