The launch of spot Bitcoin exchange-traded funds (ETFs) in the United States is having a knock-on effect in Europe, but investors on the continent remain cautious of investing in the cryptocurrency space.
VanEck Europe CEO Martijn Rozemuller spoke exclusively to Cointelegraph about the rising wave of institutional investor interest in spot Bitcoin (BTC) ETFs in the U.S., painting a contrasting picture of the European landscape.
“U.S. investors are more willing to take educated risks. They’re also more used to trading on exchanges than some European investors that are still stuck in mutual funds that their bank or fund manager once advised,” Rozemuller said.
The VanEck Europe CEO highlights key differences in attitude toward the cryptocurrency sector on either side of the Atlantic Ocean. Europe’s crypto-curious investors typically include retail users, smaller independent wealth managers and family offices:
“It’s mainly retail because a lot of the larger financial institutions are still reluctant to use any crypto-related products in their standard portfolios.”
Rozemuller adds that although Europe has a number of exchange-traded notes (ETNs) that are appropriately licensed, local regulators have “explicitly” mentioned that they’re not in favor of crypto-related investments.
Why Europe doesn’t have spot Bitcoin ETFs
The fanfare around the approval of spot Bitcoin ETFs has spilled over to markets outside of the U.S., although European regulatory frameworks do not allow for investment products solely based on a single underlying asset.
Rozemuller explains that Europe’s Undertakings for Collective Investment in Transferable Securities (UCITS) regulation is the reason for this.
“Under UCITS, in particular, it’s not possible to get an ETF with one single exposure beneath it. There are a couple of rules when it comes to diversification within the framework,” Rozemuller said.
The VanEck Europe CEO says that the reality of a Bitcoin ETF is not possible from this perspective, adding that an underlying asset needs to have an International Securities Identification Number to also be eligible as an ETF.
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VanEck Europe’s efforts to launch investment products with direct exposure to Bitcoin and other cryptocurrencies required an innovative approach. This includes a range of exchange-traded products (ETPs), which ensures customers are served by a liquidity provider independent of the issuer in an open market.
“That is good because it ensures there is transparent price discovery so you don’t have issues like the Grayscale products in the U.S. where there can be a huge premium or discount,” Rozemuller explains.
A range of investment products, including exchange-traded commodities and ETNs, allow for different offerings. ETN structures, according to Rozemuller, allow firms like VanEck to fit assets like Bitcoin into the product.
“From a practical perspective, there is no significant difference because the ETN is traded like an ETF in a very similar way. We do not use futures contracts, there’s just spot Bitcoin in the product. But an ETN, from a legal perspective, is a debt instrument,” Rozemuller said.
VanEck Europe’s Bitcoin ETN most closely resembles spot Bitcoin ETF offerings in the United States. The product offers exposure to BTC, which is held in cold storage by Bank Frick in Liechtenstein. The company has since launched Ethereum, Solana, Avalanche and Tron ETN’s, which are similarly structured.
Exposure to crypto companies
Aside from its crypto-based ETNs, VanEck’s Crypto and Blockchain Innovators UCITS ETF (DAPP) aims to offer investors diversified exposure to a handful of listed cryptocurrency exchanges, miners and infrastructure companies in the wider blockchain space.
VanEck product manager and blockchain white paper author Alessandro Rollo unpacked details of the fund in conversation with Cointelegraph. The DAPP ETF has a significant weight toward Bitcoin miners, with around 50% of the fund’s net assets comprised of shares in firms including Riot Blockchain, Marathon Digital and Argo Blockchain. Rollo adds:
“We also have crypto exchanges, notably Coinbase, and companies like MicroStrategy who simply have decided to hold large quantities of Bitcoin on their balance sheet.”
Rollo adds that the ETF tracks an underlying index managed by Market Vector, which is rebalanced quarterly, allowing VanEck to explore new opportunities that might arise.
For crypto company equities to be included in the DAPP ETF, they must derive at least 50% of revenues from digital assets or related activities. Or, like MicroStrategy, they need to hold at least 50% of their assets in the form of cryptocurrencies on their balance sheet.
Getting boomers into Bitcoin
Cointelegraph also questioned the need and demand for a cryptocurrency ETP or ETF product when the average retail investor is able to trade or hold a large variety of tokens offered by exchanges and trading platforms.
Rozemuller explained that his own apprehension toward self-custody, particularly when it involves significant exposure to Bitcoin or other cryptocurrencies, is a sentiment shared by fellow “boomers” and older-generation investors.
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“There were probably more investors like me that did see some potential but were not comfortable enough with buying it through a crypto exchange and having to self-custody with all those stories of exchanges being hacked or people losing their hard drives,” Rozemuller said.
A range of products offered by investment firms offering exposure to cryptocurrencies at arm’s length presents a middle ground of sorts. Safekeeping is managed by services with experience and reputable track records, and the product itself is typically available through a conventional investment account.
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