There are a growing number of physically backed financial products that allow you to diversify your crypto investments with one single investment. These Exchange Traded Products (ETPs) are listed on an exchange similar to stocks and ETFs which make them easily tradable.
In this blog post, we will take a look at some products that are available for retail investors to trade in Europe. We will also go over the pros and cons of investing in these products versus buying and holding cryptocurrency directly through a crypto exchange such as Coinbase, Binance etc.
The possibility of simply investing in the top 10, 20 or 100 crypto projects will appeal to a lot of investors who want to be able to benefit from the growth of the crypto market as a whole without having to pick individual winners in the space.
We still do not have an option that goes as far as allowing retail investors to invest in the top 100 similar to something like the FTSE100 for stocks, but some products will allow you to track the performance of the top 5 layer one blockchains for example.
Currently on Degiro there are four products that allow you to invest in a basket of cryptocurrencies (ranging from 2 – 7 cryptos). These are issued by asset managers 21Shares and WisdomTree.
Products Available on Degiro
|21 Shares Crypto Basket Index||21XH||Weighted market cap – 2050 circ supply * current market price||BTC, ETH, SOL, ADA, DOT|
|WisdomTree Crypto Market||WBLC||Based on fee-float market cap||BTC, ETH, SOL, ADA, DOT, LTC, BCH|
|WisdomTree Crypto Altcoins||WLTC||Based on fee-float market cap||SOL, ADA, DOT, LTC, BCH|
|WisdomTree Mega Cap||WMEG||50/50||BTC, ETH|
The weighting method of the crypto holdings in each fund differs. Some will have a fixed percentage ( e.g WMEG) that will rebalance the holdings regularly to maintain the same weighting in the fund constantly. Others are weighted depending on the relative size of the market caps of each crypto ( e.g WBLC) resulting in the weighting constantly fluctuating.
The options are still quite limited but are expected to grow. Although, there are still some products that may appeal to people such as the 21 Shares Crypto Basket Index (21XH) which gives you exposure to the current top 5 layer 1 blockchains. This ETP is the largest on offer with AUM (Assets Under Management) of €192m.
WHAT ARE THE PROS AND CONS
Let’s now consider the potential pros and cons of investing in Crypto Indexes (ETPs/ETCs) that track a basket of cryptos:
|Diversification can be achieved easily||The management fees can be high|
|No messing with wallets and seed phrases||No control over assets|
|Tax free rebalancing of portfolio||In the event of a major hack you will unlikely be insured|
|You will not be earning yield – Defi|
The most logical target market for these products would be individuals who want to invest in crypto but are not capable when it comes to understanding crypto wallets, addresses and seed phrases. There are many investor of an older generation who would still like to invest but don’t want the risk of losing their investments due to simple human errors.
The huge benefit of this method of crypto investing is that you get instant diversification, which can take time to do if you are investing in projects individually and building a portfolio.
The fees can be expensive on these products, WisdomTree charges anywhere between 0.95% and 1.45% as a management fee which will reduce potential returns compared to investing directly in the crypto assets. As you do not control the crypto assets, you will not be able to use them in areas such as Defi to earn additional yield on your assets.
Before you invest in any of these products you should take the time to be aware of all of the risks with these products. As these ETPs are physically backed with crypto, there is always the chance that these assets could be either misappropriated or hacked. These assets are often held in cold storage on exchanges such as Coinbase and also under the custody of a bank.
What Countries Are Supported?
Below is a list of all of the countries where Degiro customers can access these products.
Investing in one of these products can the best way to quickly diversify your crypto investment. This needs to be balanced against the current limit of holdings in these funds and the fees. There are potential opportunity costs of not buying crypto directly as you will be losing out on any yield that you could be earning with your crypto assets.
For anyone that struggles with the basics of crypto wallet, this could be a viable option to still get involved in crypto.
Disclaimer: this blog post is for informational and educational purposes only and should not be construed as financial advice.