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Appetite for crypto ETFs goes wild as assets spiral

The world of electronically traded funds (ETFs) has been around for as long as electronic trading itself, and is one of those staples in the institutional trading world.

The long established trading desks of Chicago and the proprietary shops of Amsterdam have been trading ETFs for years, both for their customers in the case of fund managers, and for themselves in the case of the proprietary traders, and they have often been composed using traditional, analog asset classes.

Now, however, things are changing as crypto assets have taken off as a popular asset class for ETFs, which are racing ahead and now make up a significant part of the $9 trillion ETF industry globally.

As traders look to get away from the plain vanilla index trackers which offer very little volatility and do nothing much more than tie up capital, crypto ETFs have begun to attract those with an appetite for risk and potential reward.

In Canada, Switzerland and offshore tax havens such as the Channel Islands in the United Kingdom, the exponential leap in popularity of crypto assets is of great interest.

Total assets in these funds tripled from $3 billion at the end of last year to $9 billion as of June, according to data from consultancy firm ETFGI.

Currently, the United States, which is in the advanced stages of examining how to tax and regulate cryptocurrency, is not part of this bonanza, however the SEC, which is the securities and exchange regulatory authority in the US has begun opening the market for some leveraged funds, even though currently a ban on crypto ETFs still exists. In October 2020, the SEC agreed to allow ETF providers to offer products with up to 200 per cent leverage without prior approval from the regulator.

Within the next twelve months, Coinmetro intends to launch a cryptocurrency MTF, which aligns with the way the financial sector needs to evolve, and positions Coinmetro as a fully comprehensive challenger bank as the MTF will be able to conduct this type of methodology, as well as exist alongside Coinmetro’s existing fully regulated cryptocurrency exchange and Electronic Money Institute (EMI) licensed payments functionality all in one platform.

As managed funds and exchange traded crypto products rocket in popularity, this places Coinmetro in an ideal position to be able to provide such investment facilities to traders and to do so under a fully regulated crypto exchange with an MTF facility.

Currently, a number of exchange-traded notes and products that track Bitcoin exist, such as the $242m Wisdom Bitcoin ETP. While they are regulated as securities, they do not fall under UCITS hence the Melanion fund is a trailblazer.

Today, in the Financial Times, Ed Egilinsky, managing director of Direxion, one of the largest providers of leveraged and inverse ETFs said “More investors appear keen on the risk-to-reward profile of such products. , says his business had seen an upsurge in retail investor interest since the start of the pandemic and now has $26bn under management.”

The age of cryptocurrency as an institutional investment asset class is well and truly here.