Bitcoins will hold their value until 2026

"The number of our products should double"

Mr. Rashwan, 21Shares recently launched the first Exchange Traded Products (ETP) on the crypto currencies Stellar and Cardano. What added value do they offer for investors, especially since the correlation between different cyber currencies is still very positive?

Even if different currencies are often lumped together in the crypto ecosystem, the underlying investment theses of the products differ greatly. There are commodity-like crypto assets such as Bitcoin, which work like gold as a store of value, and platform-based cyber currencies such as Ethereum. And there are also payment tokens, for example euro- or dollar-based stablecoins or more innovative transaction media such as Bitcoin Cash or Litecoin. For some of these cryptocurrencies, our products offer the only access to regulated exchanges.

How will investor interest in newer products develop in comparison to ETPs on the established cryptocurrencies?

The first trading data for our Cardano product looks very positive; we had previously received many inquiries from family offices, private banks and fund managers for this ETP. The assets under management of our Polkadot vehicle rose to $ 30 million in the first month. Nevertheless, the Exchange Traded Notes on Bitcoin and Ethereum will probably remain the most popular products, as the associated cryptocurrencies have significant economies of scale.

21Shares is not the only provider of crypto ETNs in Europe. How do you differentiate yourself from the competition?

Quite simply, we have the broadest range of products, the only index-based ETPs and the only short products of this type. For most competitors, crypto ETNs are a nice side project, but they generate the majority of their sales through other vehicles. Our focus, on the other hand, is fully on cryptocurrencies, we have no ETPs on other assets such as raw materials in the program and we do not want to. That is why we issue 70% of all crypto ETPs available on the market.

Does the quality of the products also differ?

Some of our competitors who do not originally come from the crypto world may have inadvertently taken shortcuts in their products. Because building a good product is technologically and operationally demanding, and it also requires high analysis capacities. Those who do not concentrate fully on crypto products quickly create ETPs with greater counterparty risks, which also often do not support forks within the respective blockchain.

What are the consequences for the investor?

When, for example, Bitcoin Cash was split off from the Bitcoin blockchain via a hard fork in August 2017, this meant high potential returns for investors. Because anyone who owned Bitcoin was given access to the same amount of Bitcoin Cash when they split off. If, on the other hand, investors cannot participate in forks due to a defective product, this has a clearly negative effect on performance. Our products, on the other hand, do follow such spin-offs.

However, exchange-traded bearer bonds are not the only alternative for investors who want to invest indirectly in cryptocurrencies.

That's right, but certificates and futures are often significantly more expensive and complex than ETNs. Even if they are issued by large financial institutions, these derivatives are sometimes not fully collateralized, and pricing is less transparent for the investor. With ETNs, on the other hand, the regulator leaves us little leeway for special conditions, which is why our products are very conservative for the end investor. You are 100% secured, counterparty risks are practically non-existent. Those who do not pursue an extremely specific strategy for which they are prepared to bear significantly higher costs and risks should find a more attractive investment option in ETNs than in futures.

"Those who do not fully concentrate on crypto products can quickly create ETPs with higher counterparty risks."

What interest do you expect in your products in the current year?

We currently have $ 1.6 billion in assets under management across all products. We should end the current year with $ 10 billion or more. The number of our products should double or even triple over the next two to three quarters - some will be based on more traditional crypto assets, but we are also working on entirely new strategies. We are currently concentrating exclusively on the European market with a special focus on Germany, Austria and Switzerland.

Since you are addressing Switzerland: 21Shares is registered in the canton of Zug and its headquarters are in Zurich. How do you rate Swiss crypto regulation compared to German and European?

We have had very good experiences with the Swiss regulator. This allowed us to set up a platform early on, on which we were already able to issue the majority of our products. In addition, we listed the world's first physically secured crypto ETP on the Six Swiss Exchange in November 2018; in Germany this was only possible in summer 2020. However, it is difficult to compare Switzerland with the EU, as the EU moves more slowly due to its size and the large number of interests represented. In the meantime, however, a modern crypto infrastructure is also emerging from Brussels, in which we would like to continue investing.

Meanwhile, the discussion about crypto ETFs is hot in the USA after such exchange-traded funds on Bitcoin and Ethereum have already started in Canada. What would approval for crypto passive funds mean for you as a provider of Exchange Traded Notes?

We would welcome Bitcoin ETFs in any market as it would signal a regulatory turnaround when it comes to cryptocurrencies. The US market is of course particularly important. With regard to our offer, I would not fear any negative effects as our products are mainly aimed at European investors. And in Europe, ETFs on a single underlying will not be approved. I also don't believe that local investors will no longer buy native products when starting a Bitcoin ETF in the USA. Because the advantages of our ETPs with settlement in local currencies on regional exchanges are too great for that.

However, with both an ETF and an ETN, investors buy exposure to crypto mining. Thanks to Tesla boss Elon Musk, the high power consumption when creating new Bitcoin units has come back into focus. Couldn't this also damage the image of your products?

Fears about the energy efficiency of Bitcoin mining are exaggerated and come several years too late. Because the majority of the new crypto offer is generated by renewable energies. In addition, Bitcoin mining could even solve problems that solar and wind power providers are facing. Because their networks cannot run permanently due to the dependency on the weather, and storage solutions are expensive at the same time. However, there are ways in which energy can be stored in Bitcoin mining. This would strengthen wind and solar power networks and remove barriers to electricity supply.

The interview was conducted by Alex Wehnert.