Are Europe’s First Leveraged Crypto ETNs Turning Point for Institutional Investors?
Key Takeaways:
- Europe’s first leveraged Bitcoin and Ethereum ETNs were launched by HANetf, providing leveraged exposure to the number one and two cryptos.
- The ETNs are traded on leading European stock exchanges, enabling institutional investors to participate while adhering to regulatory environments.
- Just as with traditional crypto ETPs, leveraged crypto ETNs present both potential opportunities and risks as they magnify gains and losses.
A Milestone for Crypto in European Markets
The arrival of leveraged ETNs in the cryptocurrency investment space was an important development for Europe. Different from classical crypto ETFs or spot Bitcoin ETPs, leveraged ETNs provide investors with the opportunity to achieve far greater exposure to price fluctuations without having to get involved in margin trading on crypto exchanges.
Moreover, these ETNs are traded on leading European stock exchanges such as the London Stock Exchange, Deutsche Börse Xetra, and SIX Swiss Exchange which provide high access to institutional and sophisticated retail investors.
The launch is due to demand for regulated, exchange-traded crypto investment products that offer leverage and allow investors to avoid direct engagement with complex derivatives without dealing with unregulated crypto exchanges, according to HANetf.
What Is the Mechanism Behind Leveraged Crypto ETNs?
Unlike existing crypto ETPs, which track Bitcoin or Ethereum prices at 1:1, these fresh ETNs deliver magnified returns, both positive and negative, depending on market moves.
Here’s how they’re different from regular crypto investment products:
Amplified Exposure: If Bitcoin or Ethereum rises by 5%, a 2x leveraged ETN may go up 10% — and the reverse if it goes down.
These ETNs reset daily, effectively resetting their leverage to 2x once every day, and are meant for short-term trading; however, investors looking to hold these ETNs for extended periods should consider the compounding effect.
Margin trading alternative with regulation: Traditional crypto exchanges cannot offer leveraging to institutional investors, now they can have access to a regulated product to achieve such an end.
The ETNs are linked to crypto futures contracts as opposed to spot Bitcoin and Ethereum, which may render them more accessible within European regulatory frameworks than leveraged spot products themselves.
More News: 5 Crypto Price Predictions From Top Traders: Bitcoin, XRP, Ethereum
What This Means for Institutional Investors
European institutional investors have been looking for regulated options for investing in crypto — with the option to trade with leverage — without the need of trading through a crypto exchange.
Fractional Shares of New Leveraged Bitcoin and Ethereum ETNs:
- Answers dodging European regulations that enable institutions to invest without having exposure to unregulated crypto markets.
- Get more out of short-term traders looking for bigger returns with no direct leverage.
- A Diversification avenue for the Portfolio – known to hedge funds and asset management firms whom wish to gain crypto exposure.
They’re also not appropriate for long-term holders: daily rebalancing and leverage decay may have detrimental effects on returns over long time horizons.
Opportunities and Risks
Despite the opportunities leveraged ETNs provide for crypto traders and institutional investors, they also come with high risk.
Financial services are moving to the blockchain. Source: WisdomTree
Opportunities:
Economization: Regulated crypto leverage has been made available without resorting to offshore exchanges.
Leverage: Increase your exposure to Bitcoin and Ethereum price action.
Market Efficiency: Emerging Liquidity in European Crypto-ETP
Risks:
High Risk: Crypto is volatile enough in its own right, and leverage increases winners and losers alike. This will help attain the standard daily resetting structure return vs long term holding yields different return due to compounding effect.
Regulatory Developments: European regulators still wary of leveraged products, so scrutiny could grow.
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