Dado Ruvic/ReutersSummary List Placement
It's been a dizzying few months for Bradley Duke. The chief executive of ETC Group has seen his company's bitcoin Exchange Traded Crypto product surge in value by around 200% in 6 months as interest in digital currencies has boomed.
Duke and ETC's fortunes have been propelled by the huge surge in the bitcoin price. It has risen more than 280% over the last year to $32,284 on Friday morning. Bitcoin hit an all-time high of close to $42,000 earlier this month before sliding last week.
Retail investors, and even now some institutions, have rushed towards products such as the Exchange Traded Crypto (known as the BTCetc or BTCE), which tracks the price of bitcoin and is listed on the German XETRA and Swiss Six exchanges.
Duke says the fund had around $475 million in assets under management two weeks ago (although the figure will have fallen last week along with bitcoin), having only launched in June last year. And the product's trading volumes rival those of Europe's biggest exchange-traded funds: In the first week of the year, volumes averaged around €50.4 million ($61.2 million) a day, according to Deutsche Boerse data, and hit a record daily high of €92.6 million on January 11.
"It is fantastic that we did manage to catch this wave," Duke tells Insider. "It is a wave, in the end, and there's a lot to be said for timing."
But Duke doesn't mean the wave is necessarily about to crash. "There's definitely been a groundswell, to continue the wave metaphor," he says. He cites the huge COVID-19 stimulus packages unleashed by governments and central banks, and says they have sparked "concerns about inflationary forces or devaluing forces" on national currencies and helped drive up the bitcoin price.
Cryptocurrencies remain highly controversial, however, largely because of their wild volatility. If the price of bitcoin plunges as it has in the past, the value of investments in even regulated products like BTCE could fall to next to nothing. Such worries prompted the UK financial watchdog to warn this month that investors in bitcoin could "lose all their money."Bitcoin ETPs put a 'regulatory wrapper' around crypto
Duke is reluctant to give advice on the path of the bitcoin price, saying: "I don't know what's going to happen."
Yet he argues that exchange-traded products like BTCE have been a major factor in making institutional investors feel more comfortable about cryptocurrencies, which has helped support prices.
BTCE lets investors gain exposure to bitcoin without having to buy the digital currency on unregulated exchanges, for a 2% fee. It tracks the price closely, is centrally cleared, and units can be redeemed for bitcoin or cash.
Overseen by German and Swiss watchdogs, BTCE puts "a regulatory wrapper around an unregulated asset class," Duke says.
He says the company wanted to build an "access product" that "ticked a lot of the boxes for the institutional investor." Duke says: "Definitely it started out by being mostly retail and that end of the spectrum, and then it's definitely changed in composition to the more institutional."Bitcoin price has had 'support at every level' in recent months
Cryptocurrency supporters argue that the interest of institutional investors is a key reason the bitcoin price is unlikely to suffer a dramatic plunge, as it did in 2018 when it fell from a high of more than $19,000 to around $3,000 in just over a year.
On Wednesday, BlackRock moved to add bitcoin derivatives to two of its funds. Billionaire investors such as Paul Tudor Jones and Stanley Druckenmiller have also invested, suggesting it can be a diversifier in a portfolio at times of uncertainty akin to gold.
Duke says institutional investors are one reason bitcoin appears to have had "support at every new price level over the last six months." He adds: "It just feels a little bit different to how it was before. You feel like there's a lot more people who are there, who are coming in, and who are holding and not interested in just taking short-term profits."
Yet most institutional investors are still skeptical. A survey by Deutsche Bank last week showed investors rated bitcoin an 8.7 out of 10 on a "bubble" scale.
Gerald Moser, chief market strategist at Barclays Private Bank, said in a note that bitcoin "seems to falter when diversification is most needed, such as during sharp downturns in financial markets." He also said bitcoin's volatility "makes the asset almost uninvestable."
Alex Wong/Getty ImagesSome bitcoin regulators have 'missed a trick'
Duke insists that products like his are crucial to helping cryptocurrency mature as a market. But he isn't worried that new rules will reduce bitcoin's appeal, in part because regulation is "a very difficult thing to do."
He says regulators such as the UK's Financial Conduct Authority who have clamped down on retail consumers' access to bitcoin products "missed a trick." (The FCA says it is protecting customers for an "extremely volatile" asset.)
Duke argues regulators should "take a pragmatic approach and say, how best can we encourage this growth in services, but in a sensible way where we are not allowing bad actors to proliferate."
Yet for now, regulators look set to step up scrutiny of cryptocurrencies. Treasury secretary nominee Janet Yellen last week suggested the use of bitcoin should be "curtailed" as transactions are "mainly for illicit financing."
When it comes to investor interest in products like BTCE, the bitcoin price is all-important. The next few weeks look set to be key, with a rise past $40,000 or a tumble to $25,000 or lower both possibilities. One thing is for certain, the arguments over cryptocurrencies will continue to rage.
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