Why ETPs are the gateway to crypto investing in 2025

As Bitcoin reached 100K for the first time in December, we spoke to Frank Spiteri, Head of Asset Management at CoinShares for his perspective on crypto ETPs globally. Since 2014, CoinShares has provided innovative products that seamlessly connect investors to crypto-assets, offering multiple ways to gain market exposure and bridging the gap between crypto-assets and traditional financial markets. The Asset Management business currently holds $7.6 bn in platform AuM. It consists of CoinShares XBT Provider ETPs in the Nordics, Coinshares Physical ETPs listed across Europe, the partnership with Invesco in EMEA through the CoinShares Global Blockchain Index, and the release of Finanzen.net & CoinShares Top 10 Crypto Index ETP (CFTN). More recently, Asset Management has expanded as CoinShares entered the U.S. through its acquisition of Valkyrie ETFs, strengthening its global reach. Frank Spiteri has over 10 years of experience as an ETP specialist, joining CoinShares after previously working as the former Head of Distribution and Capital Markets at WisdomTree. Prior to specialising in ETPs, he spent 11 years working as a derivatives trader with KBC Financial Products.

What is the current crypto ETP landscape in Europe?

European investors have had a head-start in regulated crypto ETPs compared to the rest of the world. CoinShares acquired Europe’s first regulated crypto product in 2015, on the Nasdaq Stockholm, with the debut of a Bitcoin-backed ETP. Today investors are spoilt for choice; there are currently around 130 Crypto ETPs amongst 17 Crypto ETP providers in Europe. Since 2020, the total European crypto ETP assets under management has grown from $600 mn to $16 bn as of today.

In contrast to the U.S. where established managers have gathered the majority of assets, specialist crypto-native firms like CoinShares dominate in Europe. For example, our Physical Bitcoin ETP (BITC) is the largest product of its kind in Europe with a management fee of just 0.25% pa. Over the last few years we have seen increased diversity in products, with launches covering staked and thematic products in addition to Delta 1 exposures. 

How have investors in Europe navigated the digital asset space in terms of ETPs?

The growth of the crypto ETP market in Europe has faced many challenges, including an ever evolving regulatory landscape. These obstacles have driven innovation and led to the creation of more sophisticated products and robust infrastructure- Europe’s proactive approach to balancing innovation with investor protection within the regulatory environment has been instrumental in the growth of crypto ETPs. 

We are seeing a growing acceptance of Bitcoin and Ethereum in traditional portfolios within Europe. There has been a consistent preference amongst European ETP investors towards Bitcoin and Ethereum, with the two largest digital assets comprising 54% and 15% of the total AuM respectively. 

However, there is more recent interest and flows into staked ETPs, and Ethereum's main competitor Solana. We are also seeing an increased interest in staked ETPs that allow investors to gain exposure to additional staking rewards. Nevertheless, we believe participation in crypto ETPs is still relatively low, especially amongst intermediary and institutional investors, when compared to ETPs offering exposure to more traditional asset classes. In Germany specifically, we’ve seen demand accelerate for our Physical Crypto ETPs as part of ETF savings plans. 

Why have the US ETFs been so much more successful than the ETPs in Europe?

The U.S. is the largest capital market in the world; The U.S. ETF AuM is a multiple of European AuM (despite the fact that Europe has more products, more listings and more providers). As a result, the AuM of a single U.S. ETF can easily be a multiple of the corresponding European product, for example, GLD was larger than the entire sum of all European gold products 15 years ago. 

European capital markets are more fragmented than the U.S. with multiple exchanges, different currencies, different regulatory treatment; preference for home state, different tax regimes, etc. In the U.S., a single listing can provide access to the entire market compared to Europe where multiple listings are required. Even then, different regulatory approaches for crypto mean full listings are currently prohibited in two of the major markets (the UK and Italy). This fragmentation also leads to liquidity differences, with U.S. products being significantly more liquid than their European counterparts. As a result, even sophisticated traders are willing to use ETFs in the U.S. Finally, the U.S. benefits from higher retail participation than Europe with far more self-directed traders. 

Are you seeing an increasing adoption from institutional investors this year?

Overall, there are indications of institutions warming to the Crypto ETP asset class, with Bitcoin remaining the primary focus. The CoinShares Digital Asset Fund Manager Survey reveals that from November this year Bitcoin's sentiment has surged, now nearly double that of other digital assets, with increased allocation among investors. Overall there has been a decline in sentiment towards Ethereum, while other assets such as Solana have received cautious optimism from institutional investors. While there is still a long way to go for the overton window to shift for many asset allocators, it is clear that digital assets are increasingly viewed as strategic diversifiers by clients. 

How should bitcoin and other crypto ETPs fit within a multi-asset portfolio?

Since 2020 our research has shown that just a small amount of crypto can have a positive outsized impact on portfolio performance. Bitcoin for example, offers low correlation with traditional assets, making it a valuable tool for diversification. In ‘The bitcoin advantage: enhancing real-world portfolios’, our research team has analysed popular real-world multi-asset portfolios such as the Yale Foundation Portfolio and the Bridgewater All Weather Portfolio, and in all cases bitcoin enhanced portfolio performance without substantially increasing risk. As such, we strongly believe it makes sense to consider digital assets as a diversifying tool, especially in the context of the declining efficacy of the traditional 60/40 portfolio structure. 

How is CoinShares differentiating from competitors?

CoinShares prides itself on research led distribution, with real crypto experience. Clients appreciate being taken through each step of their investment journey with us, so they feel confident in their allocation. We are a leader in staking, having launched the world’s first staked ETPs which pass rewards back to investors within the ETP’s Coin Entitlement while reducing management fees to 0.0% p.a. meaning that an investor's entitlement to the underlying crypto effectively increases over time. 

The company has a commitment to real-time transparency, evident through our partnership with The Network Firm and its solution LedgerLens, which leverages blockchain technology to independently verify that the amount of crypto physically backing the ETP matches the Issuer's liabilities. We are differentiated by our market leading fees on our physical product line. Currently our Physical Bitcoin ETP has a 0.25% p.a management fee. and our Physical Staked Ethereum ETP has a 0.00% management fee with a 1.25% staking reward. 

The acquisition of Valkyrie ETFs and subsequent transformation to CoinShares Valkyrie has reinforced CoinShares’ strategic position in the U.S., laying the groundwork for substantial growth in this new market. Furthermore, the CoinShares Valkyrie Bitcoin Miners ETF differentiates us as we provide clients direct access to North America's leading Bitcoin mining industry, a crucial component of the Bitcoin ecosystem- currently at $200m AuM this asset is clearly resonating with investors. Finally, our heritage in the Nordics means we have a strong presence in this region with our CoinShares XBT Provider product line and the firm’s public listing on the Nasdaq.