10 min readWhat are Physical ETPs?
The objective of an ETP is to replicate the performance of an underlying asset or benchmark with maximum efficiency and precision. Physical ETPs achieve this by purchasing the actual asset they are designed to track.
For more information on crypto ETPs, head over to our companion article What are Crypto ETPs.
As crypto is a digitally-native asset, the term “physical” may seem out of place. However, while it is true that assets like Bitcoin or Ethereum are digital in nature, they still need to be safeguarded from hacking or loss. Some crypto investors choose to self-custody their assets, by storing them long-term in cold wallets (pieces of hardware that are disconnected from the internet). Others leave them in exchanges’ custody, essentially trusting the exchange with their assets - which can sometimes have disastrous consequences. You can learn more about the risks exchanges carry in our article ETPs vs Exchanges.
When it comes to crypto, Physical ETPs provide investors with another alternative: get exposure to crypto through a regulated product, without having to worry about custody, or trusting a crypto exchange.
CoinShares is Europe’s largest and leading crypto exchange-traded products (ETPs) provider, delivering innovative products and services since 2014. In this article, we will focus on CoinShares’ Physical ETPs, explaining what they are and the key benefits they offer to investors.
CoinShares Physical ETPs
CoinShares Physical ETPs platform consists of 15 ETPs, all covering a broad range of exposures within the digital asset market.
ETPs are designed to replicate the return of an underlying benchmark or asset, either physically or synthetically. Synthetic ETPs use swap agreements with a counterparty, usually a bank, to provide the return of the underlying assets - they are generally considered more complex to maintain for most assets and less safe. CoinShares Physical ETPs are “physical”, meaning they physically buy and hold the underlying assets they track.
CoinShares Physical ETPs are structured for investor protection:
Custody
Assets are securely held with Komainu, a specialised digital asset custodian regulated by the Jersey Financial Services Commission (JFSC). Founded in 2018, Komainu was built to meet the specific requirements of institutional investors, building on industry leading digital asset security technology, and supported by risk and compliance standards developed alongside a global investment bank.
Komainu’s market-leading hardware security modules (HSMs) and cryptographic security protocols provide an institutional-grade custody solution, while still allowing for the flexibility required in 24/7 digital asset markets.
Limited recourse
Unlike some competing Physical Crypto ETPs, CoinShares Physical ETPs do not allow commingling of assets between products, ensuring investors' exposure is limited to the asset underlying the ETP.
Bankruptcy remote
CoinShares Physical ETPs are structured to be bankruptcy remote, which means the assets backing the ETP are ring-fenced, and investors’ interests are protected in the unlikely event of counterparty default. Ultimately there is no credit risk associated with Physical ETPs - only the price risk of underlying asset(s) being tracked.
Fully fungible
If you decide you want to take personal responsibility for securely holding and storing your digital assets, it is possible to redeem CoinShares Physical ETPs directly for physical cryptocurrency (subject to terms of redemption).
Competitive and transparent management fees
CoinShares' Physical ETPs have some of the lowest management fees on the market - even reduced to 0% on some products - making investing in crypto accessible to everyone through their preferred investment platform. This allows investors to be exposed to crypto with no hidden costs hampering their performance.
A listed company, for increased trust
CoinShares International Ltd is listed on Nasdaq Stockholm. All its products and services follow strict accounting and security standards, regularly audited by national regulators. This is in stark contrast with private companies that are not subject to these rules and hence less transparent with investors. In addition, CoinShares’ dedicated Compliance Team ensures best-in-class compliance with applicable regulations and practices in an ever-evolving market.
CoinShares Physical ETPs cover a broad range of asset and are widely available across Europe:
As easy as XYZ
CoinShares Physical ETPs are available through your regular broker or investment platform. And once you have bought them, you can trade them as easily as stocks and shares.
Choosing is the hardest part
CoinShares offers Physical Crypto ETPs that track a long list of digital assets. You can also choose from different types of ETPs, in order to focus on a single asset, benefit from staking, or invest in a diversified index. Head over to our ETP catalogue for the full product list.
How to Invest in CoinShares' Physical ETPs
CoinShares currently provides 15 Physical ETPs referencing Bitcoin, Ethereum, Cosmos, Polkadot, Polygon, Cardano, Algorand, Tezos, Uniswap, Chainlink, Litecoin and XRP. Once you have decided which ETPs you wish to invest in, the process is quite straightforward.
1. Log in to your your broker’s website or application to buy your ETP
The exact process then depends on your broker, but it should be the same as for any security you already own:
Select your CoinShares’ Physical ETPs on your broker account
Choose the notional amount or number of securities you wish to buy and place the execution order
Place your order
2. And… that’s it!
All you have to do is monitor your ETP’s performance. And as it’s integrated into your portfolio, a quick look at your dashboard is enough. CoinShares also shares reports for its ETPs, providing expert insights into products and market trends.
Conclusion
CoinShares Physical ETPs are 100% physically backed, accurately reflecting value, while being securely stored by our regulated custodian following industry standards. But that does not come at the expense of accessibility. Investing in a CoinShares ETP only takes a few minutes through your preferred broker, and you are then free to trade it on a securities exchange.
Physical ETPs therefore offer the best of both worlds: they are as easy to use as they are safe.
Ready to add them to your portfolio? Browse our Physical ETP catalogue for more information.