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Margareta Hricova: Welcome to ETF TV – your insight into the world of exchange traded funds, issuers and investment. I am Margareta Hricova and joining me today is Bradley Duke, co-founder and CEO of ETC Group, and Deborah Fuhr.
Bradley Duke: Thank you very much.
Deborah Fuhr: Thank you.
Margareta Hricova: So Bradley, can you tell us about ETC Group?
Bradley Duke: ETC Group began in 2018. There was a group of people from financial services who came together and were interested in the opportunity that, you know, the growth of digital assets was bringing. There wasn’t much of a choice in terms of products that give access to cryptocurrencies for retail. And that ticked the boxes for the institutional investors that we understood, with our experience in financial services, we know what an investment committee is looking for, what is permitted in the mandates and what is not. So we wanted to put a regulatory wrapper around cryptocurrency and make it accessible on a major European exchange.
Deborah Fuhr: Why do you believe the assets in your ETPs have grown faster than the other issuers that entered the market before you?
Bradley Duke: First with BTCE, which is our physical bitcoin ETP; by structuring it as an ETC and making it fully fungible with the underlying, we managed to solve probably the most important problem that is no tracking of the underlying, because when a product is fully fungible with the underlying, that means that the market makers will remove or arbitrage any dislocations and price instantly. And then as a result, the tracking becomes very low.
Another problem was to make sure that there was ample liquidity on exchange. We were the first, centrally cleared product, and that’s very important for a lot of the institutions. You know, the other products solved bilaterally settled where there is some counterparty risk, and that’s not an ideal situation for trading. But also, we wanted to make sure that there was good market depth and tight spreads. We have over seven market makers in BTCE, and they ensure that the spreads are often as low as five basis points. And our product is definitely the most heavily traded bitcoin ETP in Europe.
Margareta Hricova: So your two most successful ETPs, they are on Bitcoin and Ether. What are the unique features of these two ETPs?
Bradley Duke: One unique feature is that there is an independent administrator and an independent trustee, so the independent trustee looks after the assets under management in the event that, for whatever reason, we were to stop trading, so that the investors would be made whole. And the independent administrator is there to ensure that any transactions are done correctly and according to a given set of rules.
This is just an additional safety feature that we built into the products because it’s actually cryptocurrency. You know, if you’re just talking about regular ETFs; it’s delivery vs payment where securities are going one direction and dollars or euros are going in the other direction or pounds. But with cryptocurrency, those mechanisms don’t work, and we have to make sure that there are absolutely no problems and everything is done flawlessly on the movements of the cryptocurrencies. And that’s why we have, in addition to operations, an independent administrator who has veto rights on any transaction.
Deborah Fuhr: Do you have plans to list any more crypto or digital ETPs and are you able to share any insights on that?
Bradley Duke: Either at the end of this month or at the very beginning of December, we will launch another five ETPs on XETRA in Germany, structured in the same way as the existing four, because besides the Bitcoin and Ethereum, we also have a Litecoin and a Bitcoin Cash product.
Margareta Hricova: And who is a typical investors in your crypto ETPs and how are they using Bitcoin and Ether ETPs?
Bradley Duke: Typical is difficult to say because there is such a diversity and range of investors. Really it starts from the retail investor, wealth management firms, private banks, family offices, then going from small to the very, very large hedge funds and increasingly the institutional asset manager as well. People are realizing this is sort of a once in a generation opportunity with the growth of cryptocurrencies. And this increasing concern, given all the indicators showing rising inflation and developed markets around the world, people are interested, in particular in Bitcoin as an inflation hedge, maintaining value in inflationary times.
Deborah Fuhr: And you recently listed your first thematic equity ETF, the ETC Group Digital Assets and Blockchain Equity UCITS ETF with ticker KOIN. What type of companies does this ETF hold?
Bradley Duke: Some investors aren’t able to even invest in crypto or digital assets ETPs, so this is a UCITS ETF, which is composed of equities, which are highly correlated to Bitcoin so they can get exposure to Bitcoin without investing in Bitcoin or in a Bitcoin ETP. And the types of companies like MicroStrategy, you’ve got famously very large holdings of bitcoin, and then mining companies like Hut 8 Mining. Over time, I think we will flesh out more pure play companies, but then there’s also, let’s say, companies that are providing the picks and shovels in this particular gold rush. Semiconductor companies, etc..
Margareta Hricova: You also launched the first Bitcoin ETP to go carbon neutral. Why and how did you achieve this?
Bradley Duke: We wanted to be responsible, corporate citizens and actually take steps to offsets the carbon associated with the Bitcoin that we have under management. We wanted to make sure that we would be doing it the right way, not just buying the cheapest carbon credits that we could find on some minor exchange somewhere.
We really wanted to actually research the projects, the climate action projects and invest in reputable names in the industry. Through South Pole, through the Dorel Foundation. And these are investments into clean energy and also into reforesting the Atlantic rainforest in Brazil. We encourage other providers or issuers of Bitcoin ETPs to do the same.
Margareta Hricova: That’s great. Thank you so much, Bradley, for joining us.
Bradley Duke: Thank you so much.
Margareta Hricova: And thank you to our sponsor, HANetf, and of course, to all of you for watching. To watch prior episodes and to see news from the industry, visit us at ETFTV.NET.
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