London-based investment firm ETC Group plans to list a bitcoin-backed security on the German electronic trading market later this month.
The firm announced Tuesday the exchange-traded product (ETP), called the Bitcoin Exchange Traded Crypto (BTCE), is the world’s first centrally cleared derivative crypto asset, and would be listed on Deutsche Borse’s Xetra market based in Frankfurt, Germany.
Central clearing is a tool used in the European derivatives market to bolster stability by ensuring a financial institution takes on counterparty credit-risk. The crypto security is also backed by bitcoin, with each share giving the holder a claim to a specific amount of the cryptocurrency. According to the company, the physical bitcoin would be stored in a cold vault, meaning one not connected to the internet, operated by Palo Alto, Calif.-based custodian BitGo.
“Investors get the benefit of trading and owning bitcoin through a regulated security, while having the option to redeem bitcoin if they choose,” said Bradley Duke, CEO of ETC Group, in a press statement emailed to CryptoX.
“It really is a hybrid ETP product that has the same features as an ETF [exchange-traded product]. Because it’s a single asset instrument it doesn’t qualify to be an ETF according to the European fund regime,” explained ETC in an emailed statement.
The novel security is also bound to cost slightly more than traditional ETFs, with an expense ratio of 2% compared to anywhere between 0.5 to 0.7% charged by most ETFs.
According to ETC, “Bringing a product like this into regulated markets is not an easy task, and this is reflected in the premium.”
The unveiling of this new security comes after the German financial authority, BaFin, announced in March it would officially recognize cryptocurrencies as financial instruments. The security will be distributed on the HANetf platform joining other products including a cloud-computing ETF and a medical cannabis ETF.
The bitcoin-backed security will be available in Germany and has also been passported to the UK, Italy and Austria, meaning users in these countries will be able to hold or trade the BTCE shares.
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