Understanding what ETP is and how it differs from ETF in cryptocurrency investment

When it comes to cryptocurrency investment products, the abbreviations ETP and ETF frequently appear, but few people truly understand how they differ. Both are methods for institutional and individual investors to participate in the digital asset market, but what is an ETP and how does it work? This article will help you analyze these two products in detail.

ETP and ETF: How Are They Different Investment Products?

First, it’s important to understand that ETF and ETP are not the same concept, although they share similarities in operation. The fundamental difference lies in their legal nature. An ETF (Exchange Traded Fund) is a publicly listed fund, whereas an ETP (Exchange Traded Product) is a structured credit product traded on platforms. This distinction is significant for investors when considering legal oversight and protection levels.

ETP is a Publicly Traded Product on Platforms

What exactly is an ETP? Officially, it is an open investment product listed on national trading platforms, with derivative prices, and traded daily like stocks. It is classified as a structured debt security, fundamentally linked to the value of other securities, commodities, or indices.

The Swiss SIX stock exchange clearly defines ETPs as interest-free debt securities, collateralized, and capable of replicating the underlying asset (often commodities) either directly or with leverage. Like other investment products, ETPs are traded intraday on multiple market-making platforms; however, legally, they are not funds but structured bonds.

The advantage of ETPs is that they allow individual and institutional investors easy access to digital assets without the need for custodians or complex legal barriers. This makes ETPs a useful tool for those wanting to invest in cryptocurrencies but concerned about custody and security issues.

Bitcoin ETF - Indirect Investment in Cryptocurrency

What is a Bitcoin ETF? It is an ETF based on Bitcoin, allowing investors to indirectly invest in Bitcoin through a publicly traded fund. When you buy a Bitcoin ETF, you do not directly own Bitcoin but hold a certificate representing a share of the fund. However, the returns are identical because the Bitcoin ETF always tracks Bitcoin’s price—if Bitcoin rises, the ETF rises, and vice versa.

The most famous ETF worldwide is SPY, the largest exchange-traded fund tracking the S&P 500 stock index. Similarly, a Bitcoin ETF operates by tracking the actual Bitcoin price. The benefit of an ETF is that you don’t need to worry about your Bitcoin being stolen, where to store it, or go through complicated procedures—all managed by the fund management company.

Why Does the SEC Require ETFs but Not ETPs?

The legal differences between ETFs and ETPs lead to different regulatory requirements. To get approval from the SEC (U.S. Securities and Exchange Commission) for a Bitcoin ETF, companies must demonstrate that the cryptocurrency futures market is sufficiently stable and safe for investors. This is why the SEC has repeatedly rejected Bitcoin ETF approvals in the past.

In contrast, ETPs are not subject to such strict oversight by the SEC because they are classified as credit products, not funds. According to Swiss financial regulator Finma: “It is important to distinguish between ETPs and ETFs, as ETPs are not regulated under the Collective Investment Schemes Act (CISA).” This allows ETPs to launch more quickly than ETFs in some markets.

The Case of Amun ETP - The First Multi-Index Cryptocurrency Product

To better understand what an ETP is, consider the specific case of Amun ETP launched by the Swiss Securities Trading Platform in November 2018. This was the first global multi-cryptocurrency index ETP, based on the Amun Crypto Basket Index, tracking the performance of five top cryptocurrencies by market capitalization and liquidity.

The index components at launch included: BTC at 49.7%, XRP at 25.4%, ETH at 16.7%, LTC at 3%, and BCH at 5.2%. This product allows accredited investors to access a professionally managed crypto basket without a custodian. The Bitcoin Investment Trust by Grayscale Investment is another example of an ETP in the U.S., demonstrating that these products have gained regulatory acceptance.

Choosing Between ETP and ETF: What You Need to Know

When deciding to invest in Bitcoin or other cryptocurrencies via ETP or ETF, consider several factors. ETPs offer greater flexibility and easier access because they are less tightly regulated, suitable for early market entrants. ETFs provide higher legal protection and are more readily accepted by large institutions once approved.

Both ETPs and ETFs reduce the risks associated with direct cryptocurrency custody. If you are an institutional or experienced investor, understanding what an ETP is can be a powerful tool to participate in the crypto market without managing private keys or digital wallets.

In summary, an ETF is a fund that tracks a specific index, while an ETP is a structured credit product with similar mechanisms but different legal characteristics. Understanding what an ETP is and how it differs from an ETF will help you make more informed investment decisions.