The Benefits of Crypto ETPs vs Direct Investments
Mar 30, 2023
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While crypto as a new asset class offers investors a chance to diversify their portfolios, investing in digital assets directly can be challenging, risky, and costly. The collapse of FTX drew more scrutiny over crypto exchanges’ regulatory oversight. It was reported that between $1 billion and $2 billion of customer funds vanished due to a "back door" bookkeeping system that allowed changes to financial records for FTX, which has now collapsed into bankruptcy.
That’s why more and more investors are turning to crypto exchange-traded products (ETPs) as a convenient and secure way to access this market. Crypto ETPs are regulated financial instruments that track the performance of one or more cryptocurrencies. They offer several benefits over direct investment, such as regulated exchange listings and transparency. In this blog post, we will explain how 21Shares ETPs protect clients.
A Robust Product Structure
Every 21Shares ETP is 100% physically backed by the underlying cryptoassets, which are held in cold storage. The assets are also fully segregated meaning each ETP has dedicated wallets containing only assets collateralizing the specific ETP. Assets are never commingled and are bankruptcy remote. Because assets are diversified across custodians and wallets, we minimize the risk of a single point of failure.
Active Oversight on Custody and Liquidity
The 21Shares team conducts ongoing due diligence and regular independent audits to ensure the custodied underlying cryptoassets of each ETP are secure, e.g. custodied assets can be verified at any time. Additionally, our institutional grade setup, with external market makers, enables 21Shares ETPs to benefit from deep liquidity. These product features allow 21Shares ETPs to maintain an edge over direct investing in the fragmented and nascent digital asset markets.
Institutional-Grade Custody for Security and Legal Protection
All underlying cryptoassets are held in cold storage of our institutional-grade custodian partners, and are segregated into different accounts. Since there is clear and established legal ownership of assets, the level of legal protection would be equivalent to traditional ETPs.
An additional layer of safety exists in the form of insurance that all custodians maintain over their business activities; independent audits and due diligence is performed on the custodians’ security measures.
The table below summarizes the various asset protection mechanisms that have been put in place and their corresponding client benefits:
In conclusion, 21Shares offers a range of crypto ETPs that are protected by a variety of different mechanisms. These mechanisms give investors confidence in diversifying their portfolios with digital assets knowing that 21Shares makes every effort to protect client assets.
Disclaimer
This document is not an offer to sell or a solicitation of an offer to buy or subscribe for securities of 21Shares AG (21Shares). Neither this document nor anything contained herein shall form the basis of, or be relied upon in connection with, any offer or commitment whatsoever in any jurisdiction. Nothing contained herein represents investment advice and investors should take their own independent advice.
This document and the information contained herein are not for distribution in any jurisdiction in which the distribution or release would be unlawful. This document does not constitute an offer of securities for sale in or into the United Kingdom, the EEA, United States, Canada, Australia or Japan. The securities of 21Shares have not been and will not be registered under the United States Securities Act of 1933, as amended (the “Securities Act”), and may not be offered or sold in the United States absent registration or an applicable exemption from, or in a transaction not subject to, the registration requirements of the Securities Act. There will not be a public offering of securities in the United States.
Within the United Kingdom, this document is only being distributed to and is only directed at: (i) to investment professionals falling within Article 19(5) of the Financial Services and Markets Act 2000 (“FSMA”) (Financial Promotion) Order 2005 (the “Order”); or (ii) high net worth entities, and other persons to whom it may lawfully be communicated, falling within Article 49(2)(a) to (d) of the Order; or (iii) any other persons to whom this document can be lawfully distributed in circumstances where section 21(1) of the FSMA does not apply.
Within the EEA, this communication is only addressed to and is only directed at qualified investors within the meaning of the Prospectus Regulation (EU) 2017/1129. This document constitutes an advertisement within the meaning of the Swiss Financial Services Act (the “FinSA”) and not a prospectus.21Shares is not an investment advisor and makes no representation regarding the advisability of investing in any such investment product or other investment vehicle. A decision to invest in any such investment product or other investment vehicle should not be made in reliance on any of the statements set forth on this website. Prospective investors are advised to make an investment in any such product or other vehicle only after carefully considering the risks associated with investing in such products, as detailed in an offering memorandum or similar document that is prepared by or on behalf of the issuer of the investment product or other investment product or vehicle.
21Shares is not a tax advisor. A tax advisor should be consulted to evaluate the impact and consequences of making any particular investment decision. Inclusion of any assets within an index is not a recommendation by 21Shares to buy, sell, or hold such security, nor is it considered to be investment advice. The website materials have been prepared solely for informational purposes based upon information generally available to the public and from sources believed to be reliable. No content contained in these materials (including index data, ratings, credit-related analyses and data, research, valuations, model, software or other application or output therefrom) or any part thereof (“Content”) may be modified, reverse-engineered, reproduced or distributed in any form or by any means, or stored in a database or retrieval system, without the prior written permission of 21Shares.
The Content shall not be used for any unlawful or unauthorized purposes. 21Shares does not guarantee the accuracy, completeness, timeliness or availability of the Content. 21Shares is not responsible for any errors or omissions, regardless of the cause, for the results obtained from the use of the content. The content is provided on an “as is” basis. 21Shares disclaims any and all express or implied warranties, including, but not limited to, any warranties of merchantability or fitness for a particular purpose or use, freedom from bugs, software errors or defects, that the content’s functioning will be uninterrupted or that the content will operate with any software or hardware configuration. In no event shall 21Shares be liable to any party for any direct, indirect, incidental, exemplary, compensatory, punitive, special or consequential damages, costs, expenses, legal fees, or losses (including, without limitation, lost income or lost profits and opportunity costs) in connection with any use of the Content even if advised of the possibility of such damages.
Investments into crypto currencies and/or digital assets are subject to material and high risk including the risk of total loss. The calculated prices may not be achieved by investors as the calculated price is based on prices from different trading platforms. Furthermore, an investment into crypto currencies and/or digital assets may become illiquid depending on the trading platform or investment product used for the specific investment. Investors should carefully review all risk factors disclosed by the relevant trading platform or in the product documents of relevant investment products.
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