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ETP Operating

Model and key trends

ETP

Operating Model

Crypto ETPs (Exchange-Traded Products) operate through a well-defined structure designed to bridge traditional finance and digital asset markets. The model comprises several interlinked components:

Key Features of ETPs:

  1. Underlying Asset/Index
  • The asset that the ETP tracks (e.g., Bitcoin, Ethereum, Solana).
  • Determines the Net Asset Value (NAV) of the ETP.
  1. Issuer
  • Develops, manages, and administers the ETP.
  • Responsible for regulatory compliance, marketing, and investor communication.
  1. Authorized Participants (APs)
  • Institutional entities authorized to create or redeem shares of the ETP.
  • Ensure price alignment between the ETP and its NAV via a creation/redemption mechanism.
  1. Custodian
  • Holds the underlying crypto assets in secure, often insured, custody.
  • Can operate through a single or multi-custodial model.
  1. Creation/Redemption Mechanism
  • APs deliver underlying assets in exchange for ETP shares (creation), or return shares to redeem assets.
  • This mechanism maintains market liquidity and keeps ETP prices in line with NAV.
  1. Secondary Market
  • Where ETP shares are listed and traded (e.g., Nasdaq, Euronext).
  • Retail and institutional investors access ETPs via their brokerage accounts.
  • Liquidity is provided by market makers.

Additional Innovations:

  • Proof of Reserves (PoR): Blockchain-based transparency tools used to verify that ETPs are fully backed by the underlying crypto assets.
  • On-chain analytics: Real-time tracking of crypto collateral held by the issuer.

Key Market Trends in 2024:

  1. Massive Growth and U.S. Market Entry
  • Global crypto ETP assets under management (AUM) reached $134.5B in Nov 2024—up 950% year-over-year.
  • Driven by the SEC’s approval of 11 spot Bitcoin ETFs in January 2024.
  • BlackRock’s iShares Bitcoin Trust (IBIT) became the fastest ETF to reach $10B AUM—in just 51 days.
  1. Regional Shifts in Dominance
  • EMEA’s share of crypto ETP AUM fell from >50% to 12.8%, overtaken by the U.S.
  • The U.S. now dominates with 95.2% of global ETP trading volume.
  1. Volume Explosion
  • Global ETP trading volume reached $87.5B by Nov 2024—a 790% year-over-year increase.
  • Monthly average volume surged from $6.8B (2021–2023) to $72B in 2024.
  1. Dominance by Asset Type
  • Bitcoin ETPs account for 84.4% of global AUM.
  • Ethereum: 10.5%, Solana: 1.2%.
  • Basket and single-asset (non-BTC/ETH/SOL) products account for the remaining 5%.
  1. Emerging Product Trends
  • Thematic ETPs: e.g., focused on crypto megatrends.
  • Yield-Generating ETPs: Incorporate staking or lending.
  • “Mini” ETPs: Lower-fee, diversified offerings by issuers.
  1. Institutional Adoption
  • Advisors and state pensions (e.g., Michigan Retirement System) are now major ETP investors.
  • Big banks like Morgan Stanley and Goldman Sachs are disclosing 9-figure positions.
  1. Regulatory Milestones
  • U.S.: Spot Bitcoin and Ethereum ETFs approved.
  • EU: MiCAR rollout improving cross-border fund regulation.
  • Hong Kong: First Asian spot crypto ETFs approved.
  • UAE, Japan: Accelerating toward crypto integration.
  1. Technological Advancements
  • Use of blockchain for on-chain transparency, asset audits, and Proof of Reserve systems.
  • Real-time investor assurance through platforms like Chainlink PoR and Arkham Intelligence.

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