21Shares: improving the offering for less sophisticated investors

The Swiss firm is pushing forward its European expansion with several recent hires including Isabell Moessler as its new head of distribution for the Emea region (Europe, Middle East, Africa).

In the second of a two-part interview, Laurent Kssis (pictured), managing director at 21Shares, talks about the increasing adoption of digital assets from investors, how structured products can support the growth of the market and the appeal of this market for traditional financial firms.

Structured products can bridge the gap between investors and digital assets - Laurent Kssis

The digital assets market was supposed to be a decentralised space, but evidence shows that traditional financial firms that operate in an environment where central control is exercised are getting involved. Does this not go against the very nature of this market?

Laurent Kssis: Cryptocurrencies became an interesting investment proposition because they are decentralised, consensus-based protocols but a lot of people want to access them on a conventional market, which is centralised, trust- and rules-based. 

I think there needs to be a balance and the pool is big enough. The decentralised finance [DeFi] space has over US$50 billion in total value locked [TVL] in Ether only from investors that are yield farming, trying to capture a higher yield. 

That's a huge amount and comes from people who are also in the conventional market and would generally put their money into a structured product with capital protection.

This is what banks and financial institutions are looking for because they see the benefits of being the intermediaries themselves. They know that they're going to lose transaction fees to newcomers, such as Transferwise, PayPal, you know. Some investment banks make 40% of their revenue on transaction fees – that is a compelling argument for them to invest in the DeFi space. It is most likely that more people are going to be transacting with some form of cryptocurrency in the not-so-distant future. 

There seem to be diverging opinions in different quarters around adoption. Will this be a case of ‘first movers will be winners’?

Laurent Kssis: Traditional financial institutions can see that there are significant inflows into the digital space and DeFi - they don't want to lose out on these growth opportunities to increase their revenues.

There is also an active crypto derivatives market with new players such as CME entering the space with Bitcoin futures recently. This will also help to develop new products where investors don’t need to touch the underlying asset. 

We have also seen how some of the main names in the structured products market are making inroads into the space (Morgan Stanley, SG, BNP Paribas). There are few players ahead of the curve when it comes to digital assets. 

Most of the activity around digital assets in the structured products market is based on tracker certificates. Do you think traditional structures will gain more visibility in offering access to digital assets?

Laurent Kssis: It is still early days, but the offer is increasing. Now, most products available are tracker structures aimed to the self-directed investor, people who are happy to invest and trade without advice. However, for the less sophisticated investor the offer is limited and there is scope to improve the coverage of this segment of the market. It is about choice and non-sophisticated retail investors would welcome the opportunity to participate in the crypto market.

Structured products can bridge the gap between investors and digital assets as the capital protection element can provide the reassurance that investors are not gambling their money. We are scratching the surface in terms of structured products.

I think we are at the beginning of a huge cryptocurrency structured product market, and that will benefit the exchanges. Six Exchange and Deutsche Borse compete head on in the structure products market. I think we're going to see a tsunami of crypto structured products coming into the market, probably in the next 12 months or less.

What are your plans in terms of product offering and market reach?

Laurent Kssis: We continue to work to develop our coverage of the market and launch new products. We have a team of dedicated structurers and financial engineers and we want leverage that knowledge to be innovative in this space. 

The market is no longer just about single assets deployed an exchange traded product or an OTC structure product. It's also about indices, and about being able to capitalise on our set up to create value for investors, and deliver yield on other growth opportunities such as DeFi, yield farming, and even hybrids where we look to package together cryptocurrencies and conventional securities.

There are many options and investment propositions that would resonate with investors such as combining gold and cryptos, or the S&P 500 index with a mixture of cryptocurrencies.

We are seeking to double the amount of issuance that we have in Europe with new innovative ETPs and we also want to expand our footprint across European exchanges. The European market is defragmented, and you need to be local to have visibility. It's not about being global, but about having a presence in all the individual exchanges so that we can target individual and local investors. We are focusing our attention on local exchanges to capture more investors who have been trying to invest in these structure products and not been able to because they are not available in their jurisdictions.

Are you looking to increase the firm’s footprint beyond Europe? 

Laurent Kssis: We are looking at the US market because eventually regulators will open up to these products. We started in Switzerland, but we have ambitions to be global.

On the industry side, our outlook is positive. This industry is shaping itself very nicely. There is M&A activity and big money coming in from major players. I think we're scratching the surface. Many disruptive startup companies have established themselves but for them to grow, they will probably need to be acquired, or merged with another company.

I think over the next six to eight months there will be more consolidation, more acquisitions, and much more growth in this space.