Bitcoin fund fees fall in the middle of “crypto winter”

Fund managers reduce the cost of exchange-traded products to lure investors back to the asset class in the midst of the ongoing cryptocurrency.

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 attempt to entice investors as they try to cope with the bear market.

The launch comes amid a painful sale of everything about crypto, with the price of bitcoin down 70 percent from the peaks in November to $ 19,430, and the market value of the top 500 cryptocurrencies has fallen to less than $ 1 tn from a peak of 3.2 billion dollars.

21Shares’ new listed securities come with a total cost share of only 0.21 percent. It is during the last round of cost cuts when companies such as Fidelity and Global X offered products related to bitcoin to between 0.4-0.7 percent. It is also a sea away from the 1.49 percent fee required by 21Shares’ existing flagship Bitcoin ETP (ABTC) of $ 164 million.

“Some of our customers are more cost-sensitive than others, so we’ve been working very hard to develop what’s by far the cheapest crypto-ETP in the world,” said Hany Rashwan, CEO 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 snag. Unlike some rivals, it will be able to lend some of its holdings of bitcoins and will probably do so to help it make money despite the low fees.

In addition, the income will go to 21Shares instead of investors in the fund because cryptocurrency ETPs fall outside Europe’s Ucits fund regime, which sets stricter limits for securities lending. Rashwan said it is not currently lending coins, but added: “It is very possible it will do so in the next month or two. We will opportunistically lend.”

Rashwan said that loans would be over-mortgaged, with the collateral – bitcoin, ether or USD Coin, a so-called “stablecoin” – equivalent to at least 115 percent of the value of the loan and marked at the current market price twice per. day. A stablecoin is pegged to a traditional currency such as the dollar. Rashwan described secured loans as “incredibly secure”.

David Trainer, CEO of the investment research group New Constructs, said that the structure of 21Shares’ loans “seems reasonable”, but believed that there was still a risk that borrowers would potentially default.

“The more [crypto] falls and remains low, the more we will realize 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 crunch that swept through the digital asset market last week when it fell into liquidation .

Rashwan said the launch was just the first in 21Shares’ “crypto winter suite”, designed to help investors manage the bear market.

The plans include risk-adjusted crypto-ETPs that will offer some downside protection in return for providing some potential gains, “so that the investor can have more confidence to invest at this point”.

The products, which probably cover bitcoin, ether and potentially some broader crypto indices, may have similarities to the buffered or defined outcome ETFs that are proving to be popular in the United States.

Despite the cryptocurrency crisis, enthusiasm for related ETPs remains subdued. The 126 global crypto-ETPs monitored by TrackInsight have seen a total net inflow of $ 282 million so far this year. Their total assets are $ 5.9 billion.

Although 21Shares’ assets have fallen from a peak of $ 3 billion in November 2021 to $ 1 billion, Rashwan said the total number of shares for the ETPs was at a record high, which in turn indicates a net inflow.

“[Crypto] is going to change the world and it is here to stay. There are many investors, including institutional investors, who missed the last two bull-runs. We are starting to see many institutional investors sticking their toes in and seeing if the time is right. “

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