Fund managers are slashing the cost of exchange traded products to lure investors back 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 flagship products — in an effort to tempt investors as they try to weather the bear market.
The launch comes amid a painful sell-off for all things crypto, with the price of bitcoin down 70 per cent from its November highs to $19,430, and the market value of the top 500 crypto tokens having slumped to less than $1tn from a high of $3.2tn.
21Shares’ new listed security comes with a total expense ratio of just 0.21 per cent. That is below the last round of cost cutting when companies such as Fidelity and Global X offered products tied to bitcoin at between 0.4-0.7 per cent. It is also an ocean away from the 1.49 per cent fee levied by 21Shares’ existing $164mn flagship Bitcoin ETP (ABTC).
“Some of our customers are more cost sensitive than others so we have been working very diligently to develop what is, by far, the world’s cheapest crypto ETP,” said Hany Rashwan, chief executive and founder of 21Shares. “We are focused on developing bear market products.”
However the Zurich-based group’s Bitcoin Core ETP (CBTC) comes with a catch. Unlike some rivals, it will be able to lend out some of its inventory of bitcoins and probably would do so to help it earn a profit despite the low fees.
Moreover the revenues will go to 21Shares rather than investors in the fund because cryptocurrency ETPs fall outside Europe’s Ucits fund regime, which imposes stricter limits on securities lending. Rashwan said it was not currently lending out coins but added: “it’s very possible it will in the next month or two months. We will opportunistically lend.”
Rashwan said loans would be over-collateralised, with the collateral — bitcoin, ether or USD Coin, a so-called “stablecoin” — equivalent to at least 115 per cent of the value of the loan and marked to the prevailing market price twice a day. A stablecoin is pegged to a traditional currency like the dollar. Rashwan described over-collateralised loans as “incredibly safe”.
David Trainer, chief executive of investment research group New Constructs, said the structure of 21Shares’ loans “seems reasonable” but believed risks remained of borrowers potentially defaulting.
“The more [crypto] falls and stays low, the more we are going to realise that certain firms are overexposed,” he said. Singapore-based crypto hedge fund manager Three Arrows Capital became the latest high-profile victim of the credit crisis sweeping through the digital asset market last week when it fell into liquidation.
Rashwan said the launch was just the first instalment of 21Shares’ “crypto winter suite”, designed to help investors weather the bear market.
Its plans include risk-adjusted crypto ETPs that will offer some downside protection in return for surrendering some potential gains, “so the investor can have more confidence investing at this point”.
The products, likely to cover bitcoin, ether and potentially some broader crypto indices, may have similarities to the buffered, or defined outcome, equity ETFs proving popular in the US.
Despite the crypto crunch, muted enthusiasm for related ETPs remains. The 126 global crypto ETPs monitored by TrackInsight have seen combined net inflows of $282mn so far this year. Their total assets are $5.9bn.
Although 21Shares’ assets have fallen from a peak of $3bn in November 2021 to $1bn, Rashwan said the aggregate share count for its ETPs was at a all-time high, again signifying net inflows.
“[Crypto] is going to change the world and it’s here to stay. There are a lot of investors, including institutional investors, who missed out on the last two bull runs. We are starting to see a lot of institutional investors poke their toe in and see if the time is right.”