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

When entering the cryptocurrency investment world, investors often encounter two concepts: ETF and ETP. But what is an ETP and how does it differ from an ETF? This is a question many people don’t fully understand, even though both are ways to participate in the cryptocurrency market without directly owning digital assets.

What is an ETF — How is a Exchange-Traded Fund Defined?

ETF stands for Exchange Traded Fund, which is a fund traded on an exchange. Essentially, it’s a basket of selected assets designed to track a specific market index.

To visualize, think of an ETF like a basket containing stocks of the 500 largest companies according to the S&P 500 index. When you buy an ETF, you don’t actually own the 500 stocks directly; instead, you hold a certificate proving you own shares of the fund. SPY is the most famous example — an ETF tracking the S&P 500 and the largest exchange-traded fund in the world.

Bitcoin ETFs operate on a similar principle. When you buy a Bitcoin ETF, you’re investing indirectly in Bitcoin rather than holding it directly. The key point is that your profits depend entirely on Bitcoin’s price. If Bitcoin goes up, the ETF goes up; if Bitcoin drops, the ETF drops accordingly. The main benefit is that you don’t have to worry about where to store Bitcoin or whether it might be stolen, and you avoid complex procedures.

What is an ETP — Products Traded and Legal Differences

ETP stands for Exchange Traded Product, which is a product traded on an exchange. Legally, it’s an open investment product listed on trading platforms, tradable within the day, and settled like regular stocks.

Basically, an ETP can be understood as a structured debt security with a value linked directly to other securities, commodities, or indices. ETPs are passive investment products designed to replicate the performance of a specific market by tracking a benchmark index. Notably, legally, ETPs are not considered funds like ETFs, but are classified as bonds.

According to the Swiss SIX Stock Exchange, an ETP is a non-interest-bearing, collateralized debt security that can replicate the underlying asset (often commodities) either directly or with leverage. This means that what an ETP is in essence a different legal structure from an ETF, even though both are traded intraday on market-making platforms.

Bitcoin ETF vs ETP — Different Operating Methods

The fundamental difference between ETFs and ETPs lies in their legal structure and oversight. ETFs are tightly regulated under laws such as Switzerland’s Collective Investment Schemes Act (CISA). This means Bitcoin ETFs must comply with strict standards, especially from the U.S. Securities and Exchange Commission (SEC).

The SEC requires that for a Bitcoin ETF to be approved, the cryptocurrency futures market must be sufficiently stable and secure. That’s why the SEC has repeatedly rejected Bitcoin ETF applications in the past. Conversely, ETPs are not subject to such stringent requirements because they are classified differently under the law.

Real-World Example: Amun ETP and Leading Products

A notable example is Amun ETP — launched on the Swiss Securities Trading Platform in November 2018. It’s the first global multi-cryptocurrency ETP, tracking the Amun Crypto Basket Index with the top 5 cryptocurrencies by market cap: BTC (49.7%), XRP (25.4%), ETH (16.7%), LTC (3%), and BCH (5.2%).

Amun ETP allows both institutional and retail investors to easily participate in the crypto space without needing custodians or facing other legal barriers. Similarly, the Bitcoin Investment Trust by Grayscale is also an ETP recognized in the U.S.

A spokesperson from the Swiss Financial Market Supervisory Authority (FINMA) emphasized: “It’s important to clearly distinguish between ETP and ETF, because ETPs are not regulated by CISA.” This comment highlights the legal structural differences between the two products.

Should Investors Choose ETF or ETP?

Both ETFs and ETPs offer benefits for institutional and experienced retail investors, making it easier to enter the crypto market with lower risks. The choice between ETF and ETP often depends on:

• Legal requirements: If you’re in the U.S. and want a product approved by the SEC, an ETF is a safer choice.
• Flexibility: ETPs can offer more complex structures with greater flexibility.
• Cost: Compare management fees of each specific product.
• Legal setup: Consider your region and applicable regulations.

In summary, an ETP can be viewed as an alternative approach to investing in cryptocurrencies, with its own advantages over ETFs. Both provide ways to access the crypto market without managing private keys or digital wallets directly, making them suitable options for investors seeking indirect and safer methods.