ETP (exchange-traded product) is an umbrella term for financial products that can be traded on exchanges (e.g. Deutsche Börse/Xetra). Common subcategories include ETFs (exchange-traded fund), ETNs (exchange-traded note) and ETCs (exchange-traded commodities/currencies/crypto). An ETF enables an investment by means of a “stake”, in a basket of securities, without having to directly purchase the actual underlying assets. An ETN is a note or debt instrument which is underwritten by an issuer and which can track an underlying asset by the issuer promising to repay the investor with an amount indexed by the development of the underlying asset (investors usually have an “unsecured claim”). An ETC is similar to an ETN, but secures the claim that investors have against the issuer by holding the underlying asset as collateral (investor has a “secured claim”).
An Exchange Traded Product (ETP) is a financial instrument which is tradable on stock exchanges. They provide exposure to various underlying asset classes, ranging from stocks and gold to crypto-assets. ETPs can take on various forms, such as the following: ETF (exchange-traded fund), ETC (exchange-traded commodity/currency/crypto) and ETN (exchange-traded note).
This refers to an ETP with a currency, commodity or crypto as the underlying instrument. It thus gives direct exposure to the returns generated by the underlying crypto-asset. Bitpanda ETCs are debt securities issued by an SPV (Special Purpose Vehicle), whose assets (collateral) are additionally safeguarded by a trustee. They are fully collateralised, are traded on exchanges and do not pay any interest over their lifetime.
Every unit of purchase is linked to a nominal amount of Bitcoin, as calculated by the Crypto-Asset Entitlement (CE) expression. Whenever a unit is purchased, the equivalent amount of Bitcoin is “physically” stored in cold storage with the custodian.
A Bitcoin ETC follows the price of the digital currency, allowing investors to buy into the ETC without directly trading the asset itself. Investing in a Bitcoin ETC avoids any issues regarding complex storage and security procedures required of crypto investors. Please note that due to the setup an ETC has an inherent counterparty risk.
The investor does not directly own the crypto-assets. However, each note is backed by a predefined amount of a physical crypto-asset, whose value it tracks. It is determined by the crypto-asset entitlement (CE). To secure investors’ claims the physical crypto-asset is deposited with a custodian as collateral for the benefit of investors.
The relevant crypto-asset entitlement calculator can be found on the issuer’s website – it defines the daily amount of crypto-assets an investor is entitled to. Management fees are deducted from the entitlement and thus do not have to be charged separately. The calculation is based on the initial crypto-asset entitlement of 0.001 Bitcoin, for instance for Bitpanda’s Bitcoin ETC, and subsequently changes according to the formula, as specified in the calculator.
The formula used to determine the crypto entitlement is as follows:
CE = ICE * (1-AMF)n
Where the ICE represents the initial crypto-asset entitlement, the AMF (the annual management fee) and n is the number of days that have elapsed since issue.
The CE calculator (found on bitpanda.com/crypto-trackers/resources) allows for the calculation of the relevant crypto or cash payout, given a certain redemption date.
Bitpanda charges a 2.00% p.a. management fee on the AUM of the product. However, this will be automatically deducted from the investors’ crypto entitlement, which means that there is no cash flow involved.
It has no maturity and thus is open-ended.
As with stocks, the market price of an ETC will depend on the supply and demand for that particular ETC, as well as various other factors, including market conditions and the issuer’s actual or perceived creditworthiness.
The ETC is open to institutional investors as well as regular retail customers. Institutional investors can contact their liquidity providers (Flow Traders or Jane Street) or directly access traditional exchanges (e.g., Deutsche Börse/Xetra). Individual investors can buy and sell the product just like any stock or ETF from their existing bank or broker.
The base prospectus and its supplements, the final terms and conditions, the summaries, as well as further details on this product, the issuer and the relevant risks can be found here.
The Bitpanda ETC is issued by Bitpanda Issuance GmbH (B.I.G). Bitpanda Issuance GmbH is a wholly-owned subsidiary of the parent company Bitpanda GmbH. This enables the use of various services for its ETCs, most notably Bitpanda’s custodial services. In this way, in-house custody can be used for all ETC products, with additional monitoring from a third-party Administrator.