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November 25, 2020

Market Spotlight

How bitcoin’s role as a commodity fits into exchange-traded products with ITI Digital


The New Wave of Exchange Traded Products for Crypto

(27:25 – Teana) The world awaits the approval of a Bitcoin ETF by the U.S. Securities and Exchange Commission. Meanwhile, there are other similar products available in the market including outside of the U.S., including London-based Copper’s alternative product that simplifies the issuance of institutional friendly instruments that can track cryptocurrencies without a need for direct exposure.

ITI Digital is behind an ETC, which CEO Gene Moldavsky describes below.

(29:19) “What we’ve done is issued, together with our partners, what’s called an ETC, which is an exchange traded commodity. A lot of people know and use ETCs for example to invest in gold,
And since bitcoin essentially is a commodity, we’re using that structure and that structure is being done out of Germany, which is now a regulated and crypto-friendly European jurisdiction.”

(30:25) “Our product is very simple although it is very well structured and regulated. And you essentially get access to bitcoin. It’s very simple and it works very well for institutions and for retail,” said Moldavsky.

Boris Bilowitzki is a partner and head of sales at Copper, a custody, clearing and prime brokerage firm. The firm facilitates the issuance of actively managed certificates (AMCs). He explained how the firm is focused on enabling anybody that’s running a crypto strategy to go after the traditional space and raise capital.

(32:00) “The consensus is that crypto is an asset class in its own right, which has its place in a well diversified portfolio….There are different ways that you can structure that. An AMC is just another way to get that exposure without physically having to own it from an investment perspective,” said Bilowitzki.

(32:50/Teana) – ITI Digital’s BTC product is regulated by Germany’s BaFin, which is not a light-touch regulator. Moldavsky noted that getting regulatory approval was a “very difficult process.”

(33:23) “What was going for us and where we were a bit lucky…was that Germany actually came out in March with regulations in place essentially making crypto and digital assets fully legal. And that was a big breakthrough for us…But it didn’t mean that we didn’t go through 15 drafts of our prospectus,” Moldavsky said.

(36:20) Where ITI Digital and BaFin were able to align was in using best-in-breed service providers, such as custodian BitGo, which is similarly regulated and insured by Lloyd’s. (Paraphrase/Moldavsky)

(36:44) “That gave them, the regulator, a lot of confidence,” said Moldavsky.

(36:50) On the liquidity front, where ITI Digital was able to see eye to eye with BaFin was having best in case market makers. (paraphrase of Moldavsky)

(40:12) CME futures volume has been on the rise, and Teana asked what benefits the above discussed instruments offer over futures and if these companies are targeting the same clients.

(40:31) “I think that there’s obviously room for futures in any market, right? Any asset class. So whether it be traditional assets or digital assets. So I think that it depends on the mandate of the investor, of the institutions. And there’s room for both,” said Moldavsky.

(41:56) “Today was actually, it’s good timing because we hit our first day with over EUR 1 million of trading,” said Moldavsky.

Bilowitzki explained how investors who have made their mind up to get exposure to the asset class still want sophistication in the strategy. He says,

(42:24) “When it comes to that, being able to access this sophistication via an instrument that looks and smells like all the other stuff he’s buying is very enticing. It has room for both, more than enough room actually. But from simply an enable perspective, we are both pulling on the same string here even though the strategies that are being offered within the AMCs that are being issued on our platform are more sophisticated.”

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Gerelyn Terzo
Gerelyn caught wind of bitcoin in mid-2017 and after learning about the peer-to-peer nature of Satoshi's creation has never looked back. Previously she covered institutional investing and fintech for several major trade publications. Gerelyn resides in Verona, N.J.

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