What is the difference between an ETF and other exchange traded products?
There are several exchange traded products which allow investors to trade cryptocurrencies. For example, trusts, leveraged debt tracker funds, Exchange Traded Notes (ETN) and Exchange Traded Commodities (ETC) are all commonly grouped as Exchange Traded Products (ETP).
There are four main areas where ETFs differ from ETPs:
- Structure: ETFs trade like any other equity-like instrument, whereas other products are made up of derivatives that can be leveraged, or lent. This leads to significant counterparty risk. The Jacobi Bitcoin ETF cannot be leveraged, or lent and cannot use derivatives like other exchange traded products.
- Settlement: ETFs are centrally cleared and settled into a Central Securities Depository. ETNs and other ETPs are not centrally cleared and are often leveraged as debt instruments.
- Regulation: The Jacobi Bitcoin ETF is a regulated product, traded through regulated bodies to keep investments secure. Other exchange traded crypto products are not regulated or governed and have no regulatory restrictions through the trading process.
- Liquidity: ETF prices are set in real-time and can be traded instantly on exchange. Other products like ETNs are often not priced in real-time. Firms can have redemption limitations making it difficult to exit investments quickly.
Some firms issuing ETNs have been using terms like ‘engineered like an ETF’ which may be misleading. At Jacobi Asset Management, transparency is a core component of our product development and market communication. We are delivering against our mission to provide trusted solutions underpinned by robust, regulated and well-understood frameworks.