Recently, the crypto-investment community found itself in a state of paralysis, fixated on the decisions of the US SEC regarding Bitcoin ETF applications. Initially, the SEC rejected the so-called WINKLEVOSS ETF in its second round, and authorities later announced that the decision on the approval of the ETF filed by Cboe Global Markets Inc. wouldn’t be made until September 30, 2018. This uncertainty led to panic selling, causing cryptocurrencies to plummet. Bitcoin (BTC) fell below the critical $6,000 threshold, while Ether (ETH) took an even harder hit, dropping below $260 amid concerns over the potential sell-off of ETH by numerous ICO project operators. Overall, sentiment in the market was grim.
However, yesterday, CoinShare Holdings Ltd., a UK-based company, injected some optimism into the market. Bloomberg reported that its Swedish subsidiary, XBT Provider AB, would begin quoting its Bitcoin Tracker One (symbol: CXBTF), which has been listed on NASDAQ Stockholm since 2015, in US dollars. Bitcoin Tracker One is an Exchange Traded Note (ETN) that had previously been traded on NASDAQ Stockholm but was not available in US dollars until now. With this new dollar-denominated offering, the ETN is now positioned to attract US investors into the regulated crypto space.
Unlike ETFs, ETNs are structured as debt instruments, not equity. They are not backed by the underlying assets but by the issuer itself. XBT Provider AB issues certificates that track the performance of cryptocurrencies. These certificates, typically non-interest-bearing, come with a “Holder Put Option,” allowing the holder to request a redemption. The issuer, in turn, has the right to redeem the certificates, essentially paying back the debt.
Currently, XBT Provider offers debt certificates for Bitcoin (Bitcoin Tracker Certificate) and Ether (Ethereum Tracker Certificate). The prospectus (available for download here) also outlines plans for additional certificates for Bitcoin Cash, Ethereum Classic, Litecoin, and other cryptocurrencies, as well as Basket Certificates that track a mix of cryptocurrencies in specific ratios.
The funds raised from the issuance of these certificates are exclusively invested in the corresponding cryptocurrency. For example, Bitcoin Tracking Certificates follow the BTC price and allow indirect investment in the crypto market via exchange-traded ETNs, as opposed to direct investment in Bitcoins within a less regulated environment.
In the 48 hours following this announcement, cryptocurrency prices rebounded significantly. Bitcoin is currently hovering around $6,400, and Ether is trending back toward the crucial $300 mark.
Analysts largely welcomed the launch of the Bitcoin ETN, drawing comparisons with Grayscale’s Bitcoin Investment Trust in the US. While shares of the Bitcoin Investment Trust are sometimes traded at a premium of over 50% above the Net Asset Value (NAV) of the held cryptocurrencies, meaning investors often have to buy at inflated prices, XBT Provider’s certificates trade with only a small premium relative to the NAV.
It remains to be seen how US investors will respond to this European ETN. Nonetheless, the Bitcoin ETN quoted in US dollars could represent an important step toward the approval of the first crypto-ETF by the US SEC. Bloomberg has referred to this US-dollar-denominated ETN as a “soft opening” for crypto-ETFs. Whether the ETN has initiated a market reversal or is just providing a short-term recovery for crypto markets will become clearer with time.