Cryptocurrencies and the blockchain technology behind them have been around for about 10 years now, and many international companies use them in their daily activities. Both retail and institutional investors are looking into ways to capitalize on this relatively new market.
Every investor knows how important it is to adapt his strategy to new technologies and ways of investing. After all, without adapting ourselves to the world around us, it is difficult to create a winning investment strategy over the long term.
This is why it is interesting to look at financial vehicles like Exchange-Traded Products and Exchange-Traded Funds (ETFs), as they could bring new momentum to the cryptocurrency market.
What Is An ETP?
An Exchange Traded Product (ETP) is a type of investment vehicle that tracks the performance of one or more underlying assets. There are many assets on which an ETP can be based, such as an index, a currency, a commodity, or a cryptocurrency. An ETF is a kind of ETP.
Exchange-Traded Products have made it possible to build much better-diversified portfolios at lower costs over the last decade. In some cases, they have had a significant impact on the underlying market to which they relate.
One good example is what happened with the gold market.
“Before the arrival of the ETPs, investment in gold was made through the purchase of bullion or shares in mining companies. But there was no simple and inexpensive way to take advantage of gold’s price fluctuations,” explains Dave Abner, Senior Digital Asset Advisor at WisdomTree.
“ETPs on gold provided exposure to gold through a publicly-traded security, which has completely changed the landscape for investors,” he adds. Today, the outstanding ETPs on the yellow metal would reach more than $100 billion.
Why Are ETFs And ETPs So Attractive For Crypto-Investors?
ETFs and ETPs offer a more transparent, liquid, cheaper, and somewhat less risky environment for accredited investors who wish to gain exposure to cryptocurrencies.
By simplifying the investment process, ETPs on cryptos could have a strong impact on the underlying cryptos industry. After all, one should not forget that to gain exposure to this market it is necessary to go through several steps, which can be tedious and complicated.
First, you need to purchase the tokens on an exchange such as Coinbase or Binance, making sure that the cryptocurrency you wish to invest in is available against your fiat currency, as well as the payment method of your choice.
Then, you have to make sure to protect your cryptocurrencies against cyber-theft via a proprietary digital wallet, preferably offline (cold wallet) and physical (hardware wallet).
ETPs change this by offering to invest in virtual currencies as easily as it is to invest in a fund. ETPs are also much more attractive because they offer a more efficient fee structure and some tax-benefits, not to mention better transparency that could also improve investor’s confidence in these 2.0 currencies.
Investors could for instance “log into the audited website of the ETP issuer to know exactly how many digital coins are held by each unit of the funds in circulation. Investors will also be able to follow the evolution of net asset values (NAVs) and thus know the value of the units they hold,” explains Dave Abner.
If the cryptocurrency industry is a world you would like to be part of, but you’re not sure how to, maybe ETFs and ETPs on cryptocurrencies could be a good way to get started.
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