Crypto Exchange-Traded Notes or ETNs are an investment opportunity suitable for anyone who prefers a relaxing approach to the investment market. Simply put, you can invest in cryptocurrency without physically holding any coins. There is no need to own or operate a stock brokerage account. ETNs can be found in places where stocks are traded. As a result, they can be bought or sold like shares of stock.
However, unlike investing in cryptocurrency, it is not mandatory to handle virtual wallets and security codes. The issuer of the ETN agrees to pay off a value equal to the value of the currency it follows. But a person bears a risk in this case as it is a company’s debt which has to be repaid to the investor.
Crypto ETNs are a form of ease for the investors, who wish to place their money in cryptocurrency but in a less taxing method. You can use typical brokerage accounts for these, instead of going through cryptocurrency exchanges.
How Do Crypto ETNs Work?
ETNs that are based on Cryptocurrencies aim at the price of a specific crypto currency. When you obtain an ETN, it is not the instant investor in purchasing the currency. Rather, it is purchasing a note issued by a company. This can be likened to a promissory note made by a company which states that it will pay theworth of the currency at some future date.
So the issuing company if ETN issues a note on a cryptocurrency you choose. E.g. if you buy a bitcoin ETN, then the company is expected to track the price of the bitcoin. When the value of the bitcoin rises, the value of your ETN will also appreciate.
The management only stewards the money, as you do need to deal with the currency yourself. ETNs are stocks and can be traded the way i.e. bought and sold like shares on the stock exchange through ordinary brokerage accounts. However, you are also required to trust the company which issued the note to pay you a certain amount as per the market value of the currency, which entails some level of risk, as if that company is in problems and in turn unable to pay off you lose your investment.
Key Advantages of Crypto ETNs
Crypto ETNs are beneficial for investors in several ways. One important advantage is that they are very liquid, i.e. very easy to purchase and sell. They can be traded on stock exchanges similar to the shares of a company. This means that there is no need to use any particular cryptocurrency market or to learn how to trade and keep the electronic currency safely.
Another advantage is that you do not have to employ the digital wallet. In ETN, one does not own the cryptocurrency but rather the ETN. This may be advantageous for you as you will not, for example, have the responsibility of keeping private keys or the fear of misplacing coins.
Crypto ETNs present another alternative to investors willing to own cryptocurrencies but do not want to take as much risk in the blatant form of hacking or security issues. Since the ETNs are structured by powerful companies, most of the time they bring along some additional securities.
But yes there are still some dependent risks where you still have to believe the company that issued ETN would pay you back the value in cryptocurrency. However, the charges to trade documents and the features of safety are enticing for most investors which is why ETNs are the choice for many.
Risks and Drawbacks of Crypto ETNs
Like any other financial product, there are associated risks with Crypto ETNs. One of the biggest drawbacks is that you are not the actual owner of the cryptographic coins. This means you are in receipt of an obligation which is a one-sided trust on the part of the entity issuing the ETN. If this issuer is no more in business or runs into cash flow issues at that time, the amount you have invested is at stake.
Another risk includes “credit risk.” This is because of the fact that Crypto ETNs are notes of debt. You are extending a loan to the organization, and they have a commitment to reimburse you. However, if the organization fails to pay, you might lose the principal lent to them.
Tracking errors can make you lose out. Many a time, the ETN and the value of the underlying, i.e. the cryptocurrency, may be on opposite ends. This is because over the exchanges, the ETN price is also determined by the volume of the activities in the bourse.
To conclude, costs may be more whilst acquiring ETNs than purchasing the set cryptocurrencies. Some even yearly fees are required for keeping the ETN. These expenses may accumulate in the long run thus cutting back on your returns.
Major Providers of Crypto ETNs
There are different organizations that have created options for investors to invest in Crypto ETNs. This means that the companies design and issue ETNs which are linked to the performance of assets such as Bitcoin and Ethereum. Well known companies include VanEck, 21Shares, and CoinShares.
In Europe, one of the leading providers of Crypto ETNs is VanEck. They provide ETNs tracking the values of bitcoin, ether or even solana based on the S&P. VanEck’s reputation assumes will deliver investor friendly solutions where ETNs are bought on stock exchanges.
The other important company is 21Shares. The firm has extensive experience in the issuance of crypto ETNs and even includes of ETNs for Bitcoin and Ethereum. Similarly, these ETNs are backed by the physical coins.
Another organization that deals with Crypto ETNs is CoinShares. In their case, they have products that allow the investor to gain exposure to more than one cryptocurrency at a time such their Top10 Crypto Market ETN which aims at the top 10 digital assets.
These companies are helpful when investing in cryptocurrencies as their services do not require you to hold the coins. They are bought and sold in the same way as other tradable securities and can be traded with regular brokerage accounts.
Crypto ETNs vs Crypto ETFs: What’s the Difference?
Even though crypto ETNs and crypto ETFs appear to perform the same function, they differ in some important aspects. The two provide ways to gain exposure to cryptocurrencies without holding the headache of owning the actual coins, but the manner in which they are done is not the same.
A Crypto ETN is a type of debt instrument. This means it is similar to a bond and it is a loan which you provide to the company issuing it. The firm agrees to repay you, using the price of the cryptocurrency as a guide. There is however a caveat. Since it is a loan, there is a possibility of default. And you may never get any of your money back in case the company goes under.
A crypto ETF, however, is more or less like a fund. The rational is that it consists of units, which are identical to its controlling sums of assets. It therefore stands to reason that the risk is less since the assets in question are held by the fund rather than indirectly via shares.
Price tracking in the two instruments makes a noteworthy difference. Maturity in risk versus return for ETNs on Cryptos does attract some tracking error risk purely because theirs is both price and company performance dependent. Crypto ETFs, on the other hand, purely aim to buy and hold securities that reflect the value of the assets held thereby making them accurate.
These products have their advantages, however, Crypto ETFs are considered less risky because they hold the underlying asset which is the cryptocurrency. But Crypto ETNs may have greater scope in what assets they can track.
How to Invest in Crypto ETNs
Investing in Crypto ETNs is much like purchasing stocks. To begin with, you have to open a brokerage account which allows you to trade on the stock markets. Many famous brokerages provide access to the ETNs, thus you can look for those which track the cryptocurrency of your interest’s.
After getting an account, search for the Crypto ETN that you wish to sell. This can either be an ETN for Bitcoin or an Ethereum ETN or any ETN on other available coins. Every ETN picture on the stock market will carry different letters which are used for identifying that particular provision. Once you have made the selection of the ETN, you are ready to put an order for it just like it is done with stock.
It is advisable to pay attention to such a criterion as the fees charged in connection with the ETN. Most of the ETN sold have an annual management fee among other several kind of fees and this is usually a certain percentage of your investment. Even though the nature of the structure resembles a collateralized bond obligation, it’s best to understand the risk first before buying.
Once you buy a Crypto ETN, you can track the value of the security on your brokerage account. Depending on the prevailing market situation, the ETN can be liquidated at any time. Remember to track the value of the digital currency it is following as well as the condition of the company that issued the ETN.
Conclusion: Are Crypto ETNs Right for You?
These etn can work for individuals looking to have an easy introduction to investing in cryptocurrency. They make it possible to buy and sell exposure to digital currencies through the normal Stock Exchange which can help make it easier and safer. One doesn’t have to worry about the hassles of establishing a crypto wallet or the other technical complexities that come along with possessing real digital currency.
On the contrary, etn decoupled equities or comodity linked borrowings are not free of risks. As these are not equity instruments but rather debt, you believe an entity which issues the ETN will give you the real value of the cryptocurrency. You could suffer losses if that entity goes way of the Undertaker. Such insurances come with costs, and this is chronic to any investor.
It’s advisable to rather seek such information ahead of making any decisions. In particular, if you need a simple solution where you do not have to deal with coins, then the decision of purchasing a Crypto ETN may be the right one. However, if you prefer minimizing risks and having more control on how your assets are managed, then other items such as ETFs or owning cryptos directly may be worth seeking.
My Opinions on Crypto ETNs
In my opinion, Crypto ETNs can be a convenient form of a Crypto investment for a simple option. They allow you to purchase and sell crypto through the stock exchanges which is comfortable. One does not have to go through the hassle of creating wallets, the safety of private keys and the technical aspects of cryptocurrencies. For a person who wants to steer clear of the risks associated with the physical dealing of digital coins, Crypto ETNs are a good solution.
But then again, I would say, the risks are not something to be overlooked. Since ETNs are issuers’ debt instruments, it means one ‘relies’ on a corporation to make good of the promise to pay according to the cryptocurrency obtained. The collapse of the company will, therefore, affect the investment made. I guess as well that the fees will certainly add up throughout the period which is likely to cut the returns.
For me, a Crypto ETN is a good compromise for traders who want to participate in price fluctuations of cryptocurrency but do not want to get involved in the headache of managing it. However, in case you are looking for control and minimal risk over your investment, then I will advise that you explore other options like Crypto ETFs or actual purchase of cryptocurrency.