Category: financial products

Between a gaming library and a regulated stock exchange: this is how crypto trader work

The wish is not new: regulated crypto financial products that allow a broad investor base access to Bitcoin & Co. via a securities custody account. Whether it’s a convenient order via WKN or management by a third party without having to worry about private key and wallet. Many reasons are given for purchasing regulated and centrally managed crypto products.

In order to meet this demand, many financial service providers are trying to bring products onto the market. The problem is that financial assets are only of limited use. Why this is the case and why today more than ever a “real” mutual fund is needed. Apart from the fact that the central management of crypto assets via a bank contradicts the actual Be-Your-Own-Bank-Narrativ of Bitcoin, many do not want to or cannot take over the management of their tokens themselves by direct purchase.

Institutional clients, in particular, are often tied their hands in this respect, insofar as they can only fall back on regulated financial products. For example, the alternative investment funds (AIFs) from Blockwall or Postera, which are regulated under EU law, have been created exclusively for institutional clients. The reason is simple: in order to increase the chances of admission, small investors are excluded. For this reason, so far only institutional crypto funds have managed to obtain approval from the authorities. In addition, these funds are comparatively expensive and – compared with an ETF or classic mutual fund – inflexible. Due to a lack of alternatives, some customers nevertheless accept the often suboptimally designed products.

Welcome to the world of crypto trader

What did crypto trader do when they had no access to real coffee in historically difficult times? They drank so-called Mukkefuck, i.e. inferior substitute coffee. The situation is similar with crypto trader. Since no ETF has yet been created and there is no actively managed public crypto fund from a Deka, DWS or Union Investment, less sophisticated crypto financial products are issued by less established financial institutions.

Instead, the private investor quickly stumbles across CFDs, i.e. contracts for difference, which are aggressively advertised by the relevant providers via banner advertising. This may be interesting for the loss-proven daytrader, but not for the average investor, who simply wants to put some money into Bitcoin & Co.

ETP, ETN etc.

Furthermore, so-called ETNs, i.e. Exchange Traded Notes, which represent Bitcoin, have been around for quite some time. In contrast to ETFs, however, these ETNs are legally designed as debt securities. This means that the underlying assets do not have to be acquired physically, nor do they offer extra investor protection as special assets. New this week is the Amun Krypto Basket Index in the form of a generally held ETP. ETP is only the generic term for exchange-traded index fund constructions such as ETN, ETC, ETF, etc. ETPs are not the only ETPs.

As laudable as it is that regulated stock exchange products are designed by hook or by crook, one must nevertheless state that these products only reach a very small circle of investors. Too unclear is their structure, too little investor protection. Pubertal nuances such as the company name under the ticker symbol HODL do not make the investment offer any rounder either. On the contrary: as a serious investor, you don’t want to feel like you’re in a game library at the main station. The subject of investment still has a serious character in 2018.