In Focus: Passive Investing  

Q&A: What ETPs can bring to crypto investment

For crypto, we could expect to see similar stories. The industry has seen several single-coin products backed by physically held coins or futures, taking long or short positions. 

What’s more exciting is the next stage of product development which could include basket solutions with ETPs tracking a beta index, or thematic crypto index, or maybe actively managed strategies.

This area would add additional value to investors with portfolio management and crypto selection expertise delivered via an ETP structure. 

FTA: How are advised clients likely to access crypto? How should they?

AL: Crypto ETPs can be easily implemented as part of an advised client’s multi-asset portfolio, whereby the adviser would have visibility of the asset allocation and can rebalance and incorporate the crypto exposure in client’s risk budgeting and investment policy statements. 

A WisdomTree survey of retail investors conducted by Opinium, revealed that over 34 per cent of investors buy crypto assets via crypto exchanges, 20 per cent via online brokers, and only 18 per cent via financial advisers, in addition to other independent channels. 

These results suggest easy access is key, but this approach could present risks due to potential of trading on unregulated environments. 

FTA: Will advisers be more comfortable recommending ETPs or smart beta strategies that give access to cryptocurrency?

AL: If we are looking at crypto ETPs versus Blockchain themed equity funds, we can look at it from this angle. Crypto ETPs invest in native crypto assets, whereas blockchain funds usually consist of stocks from listed companies that are involved in blockchain technologies. 

These could include producers, innovators, miners, users or other ecosystem participants. Stock market access fits into many of the more established compliance requirements.

However, much like investing in physical gold versus gold mining stocks, these are two different types of underlying assets, and hence would deliver different exposures and behave very differently. 

Both the cryptocurrency and Blockchain investment areas would require advisers to dedicate time and resources to build up the knowledge on these topics. The crypto industry is generally good with knowledge sharing given its community-driven setup. 

One of our key focuses is to partner up with advisers and investors to support them on research and help them articulate crypto to their end clients. 

FTA: Do you feel the regulator should be doing work on this? Why/why not?  

AL: Regulators are increasingly looking into the crypto space to find the appropriate framework to govern the landscape. From the news and interactions that we have seen in the industry, regulators generally have the goal of protecting market integrity and protecting investors. 

It takes time to understand this nascent asset class, and the speed of innovation within crypto means that there are continuously new developments both in terms of the technology as well as products and ecosystems.