Bitcoin ETN comes to London
One of the world’s biggest bitcoin ETNs, the Bitcoin Tracker EUR (O2XI), is getting cross-listed onto the London Stock Exchange having first listed in Sweden. The product tracks the price of bitcoin in euros and is provided by XBT Providers.
O2XI’s English-language prospectus (the main one is in Swedish) makes for interesting reading. It says that the note is structured as a “non-equity linked certificate which synthetically track the performance of the price of Bitcoin or Ethereum respectively
less a fee component.”
Whereas for most ETFs, synthetic means using swaps provided by a giant investment bank, in this case it is unclear what synthetic replication involves. The prospectus adds: “there [is] no collateral or other assets against which Holders can make any claims.” Synthetic ETFs almost always have collateral.
The guarantor of these certificates is a Jersey-based company called Global Advisors, which majority-owns the issuer XBT. It is interesting that this company, based in Jersey and with C-suite staff of mostly Anglo-American, chose to list first in Sweden. Maybe the Swedes are more open to this type of product.
Analysis – one for the short sellers
Bitcoin products have the great merit of being interesting. Bitcoin was the hottest topic in 2017, but for all the headlines institutional investors had a hard time accessing it directly. Institutional investors typically need bank custodians, and while there are bitcoin wallets, these types of custodial services are not good enough for institutional investors, who manage other peoples' money.
Enter Bitcoin Tracker EUR, which now has more than 180m euros under management. Although it had no bank custodian as such, the product at least had an ISIN – something institutional investors can work with.
But investors considering this type of product should exercise caution. ETNs are not ETFs – as the recent VIX crisis did well to remind everyone. And if ETNs issued by a giant like Credit Suisse can fail, then where does that leave an ETN backed by a boutique company in Jersey?
There are other items worth noting. For one, the product charges 2.5% in management fees – among the highest we have ever seen. For two, it has the Pacific Ocean of spreads: with a 52-week premium of almost -10%. Trading cryptos tends to come with higher transactions costs, but these premiums and management fees ought to be kept in mind.
The KID for this product warns that it is intended for “speculative investors [who] accept the risk of losing some or all of their investment.” While these types of disclaimers are typically ignored, this one ought to be taken seriously.
In our opinion (and it's only our opinion) O2XI has a lot of clever things going on legally and is truly a globe-trotting product. But given its unsecured structure, it is one for the short sellers.