Leonteq launched yesterday, October 3rd, a new suite of exchange traded notes tracking bitcoin targeted at investors seeking to capitalise on the crypto-currency price trend which continues to be uninterruptedly upwards following the ‘explosion in the exchange rate’ this August. Since the start of the year, bitcoin has increased in value by over 300%, and Leonteq has seen an increasing number of requests for products related to crypto-currencies, such as bitcoin, over the last couple of weeks, according to Manuel Duerr (pictured), head of public distribution at Leonteq.
The products are listed on the Six Swiss Exchange and can be traded as a bond or a share without the need to open a new account. "The product is suited for investors who seek price appreciations of bitcoin and are willing to accept the volatility of bitcoin as well as the potential risks associated with this product," said Duerr. The volatility of bitcoin has been high over the last few months due to events such as the split of bitcoin into two versions (bitcoin and bitcoin cash), commentary from Jamie Dimon, chief executive officer of JP Morgan about the validity of bitcoin or regulatory events as seen in China.
"A number of events might further increase the volatility of bitcoins: changes in technology (also the potential of a new fork due to Segwit2x), risk of cyber-attacks and additional regulatory changes - elevating the potential of investment gains and losses in the products," said Duerr. "Potential investors should also note that bitcoins lack the historical track record of other currencies or commodities."
According to Duerr, bitcoins have become increasingly popular. At the beginning of this year, around 11 million people held bitcoins, whereas by the end of August that figure had risen to over 16 million, said Duerr.
"But it is not only the digital community that is increasingly making use of it - acceptance of bitcoins by businesses and, more recently, also by certain countries has grown," said Duerr. "In the spring of 2017, Japan became the first country to recognise the digital currency as a legal means of payment, with Australia following in July. Swiss investors have for the first time the possibility to invest into bitcoins in their home currency."
The current bitcoin-linked offering is not packaged as a buy-and-hold product with capital-protection, and traditional payoff profiles but provides exposure through different currency denominations, including Swiss francs, euros and US dollars, according to Duerr. "The products replicate the price movements of bitcoin (adjusted by the respective foreign exchange rate) and are therefore in terms of volatility risk comparable to a direct investment in bitcoins," he said. "Admittedly, strong fluctuations in the double-digit percentage range on a single day - as have been experienced in the past - may still be part of the scene. But many developments, such as the emerging discussion around bitcoin ETFs, are testimony to growing interest within the global financial industry in cryptocurrency trading."
In March, it was announced that the Winklevoss twins' licensing application for a bitcoin-based ETF had failed, the chances of a change in thinking at the US Securities and Exchange Commission have now vastly increased, according to Duerr. "Therefore, while discussions are still ongoing in the ETF world, Leonteq is already offering interested investors the opportunity of turning to bitcoin, via tracker certificates," said Duerr. "The products, with a three-year term, are offered in three currency tranches - CHF, EUR and USD. These enable a direct participation in the upward exchange rates of the digital currency starting from 0.1 bitcoin equivalent; ie. around CHF 440 investment only. In any case, potential (retail) investors should consider the suitability of this product as an investment in the light of their own circumstances and financial condition."
Regarding the suitability of products linked to such underlyings for retail investors, Duerr stressed that as these "products expose investors to elevated risks", investors "must ensure that they understand and are prepared to assume the risks resulting from the products and exposure to the underlying".
This is the latest bitcoin tracker to be brought to market following the launch of XPT Provider's exchange-traded bitcoin notes, Bitcoin Tracker One and Bitcoin Tracker Euro, which were designed to replicate the performance of the bitcoin, in Swedish krona and euros, respectively, and were listed on Nasdaq OMX. Launched in 2015, Bitcoin Tracker One became the first bitcoin-based security available on a regulated exchange.
Earlier this year, Vontobel increased the issue size of its two-year Voncert on Bitcoin tracker in Switzerland, and in Germany in a move to respond to "strong demand". Vontobel became the first provider to offer Swiss and German investors tracker certificates on bitcoin in 2016.
Leonteq is the second provider of structured products in Switzerland with a market share of 18% year to date on the back of 1,187 products sold worth CHF2.4bn (€2.1bn), according to SRP data.
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