Cryptocurrency-based exchange-traded products (ETPs) are a type of security that tracks the price movement of a reference asset or index. In other words, they’re an investment vehicle designed to track and trade the value movement in one or more cryptocurrencies.
Essentially, they allow investors to participate in the potential gains from holding an entire portfolio rather than just one token.
A Crypto ETP Is Appealing
Crypto-based exchange-traded products (ETPs) link to a reference asset or index and have their prices dictated by market forces. Therefore, on cryptocurrency exchanges, every crypto ETP is priced to the market value of that asset.
Crypto ETPs use cryptocurrencies as their underlying assets and are, therefore, based on digital tokens instead of traditional financial instruments. As a result, they can be traded on exchanges with prices dictated by market forces rather than any single party (such as a fund manager).
Crypto ETPs are a new class of investments that have emerged due to cryptocurrency’s rapid growth and popularity. That has led to an increase in demand for cryptocurrency investment vehicles. A crypto ETP is a logical outcome of that increasing demand.
How Does A Crypto ETP Work?
A cryptocurrency ETP is a basket of cryptocurrencies bundled into one tradable instrument. The value of the ETP changes as the price of each component cryptocurrency moves individually. It allows an investor to reap the benefits of a portfolio rather than holding just one token.
In this case, a crypto ETP will consist of multiple cryptocurrencies selected by the provider.
The value of the ETP changes based on the price movements for each cryptocurrency within its portfolio. Suppose you have invested in a Bitcoin-based ETP, for example, and bitcoin starts to fall in value, but ethereum’s price has increased significantly during this time. In that case, your investment will remain positive if ethereum’s returns are more significant than bitcoin’s losses.
Investing in a cryptocurrency ETP – rather than holding each cryptocurrency directly – allows you to reap many benefits. Those include diversification and risk management while still being able to participate in the market with confidence. In addition, investors know that any downturn won’t affect their entire portfolio too drastically.
Gaining Broader Exposure
By investing in a crypto ETP, investors essentially buy exposure to the value movement in one or more than one underlying cryptocurrency. As a result, they can enjoy similar advantages over direct investment – such as low fees, tradeability, and liquidity – while leveraging the benefits of diversification.
Crypto ETPs are not only limited to cryptocurrencies. They can also track other underlying assets that have an intrinsic value related to the price movements of cryptocurrencies. The three main types of crypto assets used for this purpose are:
Equity tokens: These represent ownership rights in equity (stocks) or debt securities issued by companies involved with blockchain technology.
Tokenized real estate funds: These represent ownership rights in real estate properties around the world based on tokenization technology.
Cryptocurrency baskets/indexes: These track a group of cryptocurrencies according to their market capitalization or other metrics like volatility.
A Convenient Tool
Cryptocurrency ETPs allow investors to reap the benefits of exposure to multiple cryptocurrencies while enjoying the ease of trading a single token.
Cryptocurrency ETPs are a convenient way to invest in cryptocurrencies. They are traded on regulated exchanges and have low fees, making them easy to use for both seasoned traders and beginners. In addition, Crypto ETPs can be used as an alternative investment by retail investors who want to diversify their portfolios. They don’t need to worry about security or price volatility issues associated with cryptocurrency investing.
Crypto ETPs also offer greater liquidity than other crypto investments because they’re traded on public markets. As a result, you’ll be able to buy more efficiently when the market is down and sell quickly when the market goes up.
That approach provides investors with greater flexibility over time than if they were using a non-traded method like direct crypto trading (i.e., buying Bitcoin directly from another person).
While ETPs have been around for decades, crypto ETPs are a relatively new phenomenon. They are still in their infancy, and there is a lot of confusion about how they work and the benefits of investing in them.
We hope this article has helped you understand what a crypto ETP is, how it works, and whether or not it’s right for you!
Please note that the information provided on this page is not intended to be and should not be interpreted as legal, tax, investment, financial, or any other form of advice. It is important to only invest what you can afford to lose and to seek independent financial advice if you have any doubts. For further information, we suggest referring to the terms and conditions as well as the help and support pages provided by the issuer or advertiser. CryptoMode is committed to accurate, unbiased reporting, but market conditions are subject to change without notice.