ETC Group has ridden the asset flow volatility of the crypto space in Europe for some years, with one of its highs recognised in the ETF Express European Awards in 2021, with its BTCE ETP celebrating remarkable growth of 34,259 per cent from launch on 8th June 2020 to 1st June 2021.
On relatively firm and less stratospheric ground, Bradley Duke, Chief Strategy Officer at ETC Group, explains that the firm has assets of USD590 million and is focusing on following the regulated path in Europe, as the sector becomes more structured within the institutional space.
“We have seen a huge amount of growth across the sector,” Duke says, “but people haven’t got as excited about cryptocurrencies as they did in 2021, which is understandable against the backdrop of the FTX Scandal and Terra Luna of 2022.”
ETC Group has recognised that a number of day traders and short-term investors use their BTCE ETP as a proxy for bitcoin. “We are happy to see the inflows but never happy to see the outflows,” he says, but notes that its use is a vote of confidence in its liquidity and its position as the largest physical bitcoin in Europe.
Imitation is also a compliment and commenting on the other launches in the bitcoin ETP space which have been seen over recent years, Duke says: “It’s an area which is becoming more mature and lots of people come in with a different offering and it’s for the investors to judge whether they like another structure and how another firm might deal with forks.”
Duke says that despite the lack of bullish sentiment in the price of bitcoin, there has been a sea change. “There is a sense that the traditional finance incumbents have embraced cryptocurrencies in a meaningful way from major investment banks to Charles Schwab to BlackRock – across the full pantheon of financial services in the US and globally, a number mature and well-established entities have prepared or are preparing a crypto offering.”
The health of cryptocurrencies generally in investment terms still seems to be dependent on the price of bitcoin. Duke agrees and notes that the two main stories focus on bitcoin and Ethereum.
“There have been many thousands of coins created which doesn’t mean that there is a business case there, but because these are open platforms, people can create them and a lot of it is noise.”
Duke notes that bitcoin has the added advantage of scarcity –being a hard currency – while Ethereum is now seeing valuation models based on traditional methods such as discounted cash flow. “That’s a big step,” Duke says. “At a certain point, bitcoin and Ethereum should decouple as they are so different, but there is still this feeling that if bitcoin moves, other coins will.
“I have no crystal ball, but I think that bitcoin, just by virtue of its scarcity, will go up. If you think about it, if BlackRock gets its spot ETF approved in the US, lots of people think that the iShares brand is well established with lots of comfort so asset managers will enter into the space for the first time and BlackRock – and its authorised participants – will need to buy bitcoin and so that simple buying pressure in supply and demand story will push the price up.”
ETC Group has published portfolio analysis papers that show that adding bitcoin to a portfolio as a risk asset pushes portfolios up to outperform.
That spot price bitcoin ETF launch in the US sits with the SEC and is hotly anticipated but Europe is also waiting for the Markets in Crypto-Assets Regulation (MiCA) expected next year.
“Lots of institutions are waiting for a regulatory framework,” Duke says. The UK’s FCA has banned all retail sales of cryptoassets but Duke feels that will change as you can now register a company that is working in cryptoassets.
In the US, Grayscale, the biggest bitcoin fund, has pushed the SEC into allowing a spot bitcoin ETF.
“What is happening there will affect the demand for cryptocurrencies globally,” Duke says. “Grayscale is brave to take on the SEC and have courage in their convictions. You start to question how much of the SEC’s decision has been based on the opinion of a few but they are a government body that has to answer to, not only their own rule book, but potential legal challenge if people believe their decisions are incorrect.”
For Duke, it doesn’t make sense for the SEC to block a spot bitcoin ETF when a bitcoin futures ETF is allowed based on market manipulation concerns as ultimately both are priced based on spot bitcoin.
“Grayscale has done a favour for all the other participants,” he says. “What will happen is when the SEC does consent it will be a blanket approval of a lot of the applications as they are all very similar.
“Grayscale already has the bitcoin and Ethereum backing their existing products, so there will not be so much of a price effect if they get permission to convert to spot ETFs, but it will be a signal to the market and that added confidence means a lot to the institutional investor.”
Looking forward, ETC Group is planning to launch some ‘interesting products” but has noted that a lot of people have launched into a flat market and not managed to attract many assets beyond seed capital. “Market timing is hard to do but it is important,” he says.
“We will be watching and certainly we will have new products coming out. True to our ethos is that we always want a product that will pass muster with institutional investor’s investment committee and due diligence processes.”
The firm has also announced the appointment of Chanchal Samadder as Head of Product, writing that his hire is designed to help grow the firm’s existing product suite as well as design and implement institutional-grade investment products.
Samadder joins ETC Group having served in senior positions at abrdn, Lyxor (Amundi), BlackRock, and UBS.
Tim Bevan, CEO, ETC Group, says: “With many years of experience in the European ETF/ETP market and a proven track record of building successful, innovative products, Chanchal is a great addition to ETC Group. He has a deep passion for digital assets and blockchain technology and we’re confident that he will play a key role in managing the company’s existing suite of products as well as developing new product strategy with oversight of all aspects of the product lifecycle.”
Chanchal Samadder says: “With the next wave of investment into crypto and digital assets expected to be institutionally led, I’m excited to be joining ETC Group at this pivotal moment for the company and for the industry”.