SEC suddenly suspended ETN. What is ETN? Understand ETF and ETN.
Cryptocurrency investors hold their breath as they wait for the US Securities and Exchange Commision (SEC)’s decisions on cryptocurrency ETFs. As seen in the recent news, the hope was demolished.
As if the ETF rejections weren’t enough, on September 9th, SEC announced the temporary suspension of two exchange-traded notes (ETN) beginning in September 21st. The reason for the suspension was that many investors may mistakenly assume ETNs are ETFs. On the same day, BTC dropped to around $6100.
What cryptocurrency ETNs are currently in the market?
Bitcoin ETN isn’t a new derivative of cryptocurrency. Bitcoin ETN has been traded on the Nasdaq Stockholm Exchange ever since 2015 using euro and Swedish krona. Similarly, Ethereum ETN has been traded since 2017. Bitcoin Tracker One and Ether Tracker One first became available to American investors on the American market on August 15, 2018.
What is ETN?
ETN, exchange-traded notes, is backed by its issuer such as a bank, rather than a pool of assets. It was first developed and issued by Barclays Bank PLC in 2006.
ETN is different from other bonds. ETN’s remuneration is based on the remuneration of the specific market index, minus the necessary fees. It does not pay a fixed interest and does not guarantee the return of initial investment. Therefore, ETN can be understood as a combination of bonds and ETF features. It is a structured product that is traded on exchanges. Interest is usually paid only when it is sold. Similar to bonds, ETN also has a maturity date, usually 30 years. This is the ETN in the traditional financial market. Let’s take a look at the ETN in the cryptocurrency market.
What is a Bitcoin ETN?
Bitcoin ETN is a bitcoin exchange-traded instrument or bond that allows users to participate in investment by tracking bitcoin price movements. At the same time, ETN is also a very effective hedge tool.
After investors purchase Bitcoin ETN, they do not need to hold Bitcoin directly. The company will hold Bitcoin on behalf of investors, which reduce investors’ investment risks. This investment tool greatly expands the door of institutional investors’ entry to cryptocurrency investments.
What is the difference between ETN and ETF?
Bitcoin ETN is similar to ETF products in that investors can invest in Bitcoin without holding Bitcoin directly. This will prevent immature investors’ loss when the price of cryptocurrency fluctuates. Secondly, both can effectively attract more investors, bringing in more capital inflows. Lastly, both ETN and ETF are backed by traditional financial institutions, which greatly reduces the investment risk of investors.
The difference between the two is that, first, ETN is a bond trading instrument that is guaranteed by the issuer and has no other asset support. The issuer is usually a bank rather than an asset pool. It is more like a debt instrument supported by a bank or another credible issuer. Second, the Bitcoin ETN allows users to participate in the investment by tracking price movements. The user can exchange funds for a period of time based on the price index.
Similar to the gold ETF, the Bitcoin ETF is a transactional open index fund that replicates the bitcoin price index of a market. In addition to the ETF investors, the organizer, the trustee and the custodian are also involved. They will sign the entrust agreement and perform their duties in accordance with the agreement.
Third, ETF uses digital currency to redeem, ETN uses cash for redemption. ETN faces some restrictions that result in less timeliness. These non-physical features determine that its arbitrage efficiency is not as good as ETF, so the discount rate is generally higher than ETF.
Finally, and most importantly, ETN is leveraged, which greatly increases its benefits and risks.
How will ETN affect the cryptocurrency market?
Recently, the market seems to have entered a period of fall. Investors have no desire to trade. As a result, everyone hopes that the last “fire” that ignites the market will be the Bitcoin ETF.
Before ETF is approved, we cannot be sure whether bitcoin ETN can invest in ETF. Since the issuer of ETN is a bank, we cannot eliminate the possibility of ETN investing in ETF once cryptocurrency ETF is approved.
In order for more investors to know about this product, more exchanges need to be willing to participate. Looking at the current market, many exchange platforms do not offer this product. This is perhaps because of the potential complicated trading process ETNs require.
Industry opinion influencers also do not view this product favorability. For example, Jeff Kilburg, the founder and CEO of KKM Financial, explains that Bitcoin and its up-and-down volatility will continue until a decision is reached on ETFs and that even the ETN won’t have much say in it all.
Bart Smith, the head of the digital assets division of the global investment market giant Susquehanna International Group, said that the ETN has gained some traction, but is nowhere near as explosive as an ETF.
Both ETF and ETN are trading tools created by the market. More tools result in more investment channels to maintain the volatility of the market. Therefore, only by giving investors the opportunity to make choices, allowing investors to find the right tools for them, the market will become more reasonable and healthier.
Translated by BlockTrain LLC
Original Author: 崔皓月
Original Article Link: https://www.hecaijing.com/article/show/15368187961613513.html
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