UK Liquidity Provider Develops First Crypto ETP For Swiss Bank

UK liquidity provider GHCO is planning to venture into the cryptocurrency exchange-traded product (ETP) market with the launch of a new product in February. The business is set to initiate market making ETPs for Swiss bank SEBA, but senior company representatives say the firm is also holding talks with a number of other market players.

ETPs are a class of securities that trade on exchanges similarly to stocks. They track securities, an index, or other financial instruments. Crypto ETPs reflect the value of the cryptocurrencies their value is pegged to.

Stefan Kaba-Ferreiro, Head of Trading at GHCO, told local industry news site ETF Stream that the better custody combined with the rapid rise in institutional investor uptake indicated the market landscape was gradually shifting away from the 2017 “wild west” state.

Kaba-Ferreiro believes that pricing cryptocurrency ETPs is “a market maker’s dream” because of the extreme volatility levels of these products, but also improving custody.

“As a market maker, it is a great market to be in due to the arbitrage involved,” the trader said. “Previously, liquidity providers could make [USD] 200 spread on a single bitcoin trade compared to mere basis points in the ETF (exchange traded fund) ecosystem but this has since come down due to increasing liquidity in the market. Once there are more liquidity providers in the crypto arena, the market will become more competitive.”

Recent analyses show the ETP asset class is establishing itself as an increasingly attractive investment category, with Bloomberg estimating that the value of cryptocurrency-linked exchange-traded products surpassed EUR 1 billion as of December 2020. The increasing demand for crypto ETPs has not been hampered by various regulatory obstacles, such as the October 2020 ban on selling such products to UK retail investors.

The country’s Financial Conduct Authority (FCA) has banned the sale of derivatives and ETNs (exchange-traded notes) that reference certain types of cryptoassets to retail consumers. The watchdog said that, due to the harm they pose and the impossibility to be reliably valued by retail consumers, it considered these products to be ill-suited for retail investors. The watchdog claimed that consumers could save around GBP 53m (USD 72m) owing to the ban.

Despite the UK setback, Germany’s Federal Financial Supervisory Authority (BaFin) has allowed crypto ETPs to list on the Deutsche Börse stock exchange, triggering a number of listings.

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Learn more:
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