ETP operating model and key trends

✅ Operating Model of ETPs

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:

    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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