A Netherlands-based brokerage, Flow Traders NV, has started to make markets using exchange trade notes based on Bitcoin and Ethereum, this despite warnings from the Dutch financial regulator against doing so. There has been a drive for months now by product providers to get regulated, exchange-traded products out the door which can also receive the seal of approval from financial regulators.
When will we see the first Bitcoin ETF?
Up until now, it has been possible to trade crypto currencies like Bitcoin and Ethereum in the futures markets, as well as using the likes of CFDs or financial spread bets, to trade underlying crypto currency prices. In addition some investment funds have been launched that are trading in the crypto currency markets.
However, a properly exchange-traded product has remained elusive. Several applications have been made in the US for an ETF based on Bitcoin, but thus far the SEC has been unimpressed.
Dennis Dijkstra, co-CEO of Flow Traders, has confirmed that his firm is seeing considerable institutional interest in the concept and anticipates that fully regulated crypto currency products are just around the corner. Flow Traders has confirmed that it is now trading ETNs (exchange-traded notes) on regulated stock exchanges. It is hedging these trades using futures contracts based on Bitcoin and Ethereum on the CME and CBOE.
Flow Traders: no small fries in the ETF space
Dijkstra’s company, Flow Traders, is no minnow: it is one of the biggest active traders of ETFs in Europe. It transacted nearly $290 billion in ETFs in Q1, making it the largest active ETF trader in Europe. It also makes it Flow Traders natural candidate for the first crypto currency ETF in Europe, should Dijkstra get his regulator to budge on the issue.
The Dutch regulator sent out a note to market participants in June, warning them against offering crypto currency investment opportunities to the general public, and again stating that it did not recognise crypto currencies as an asset class.
While digital currencies as an asset class have eluded regulation, this does not extend to actual investment products that invest in them, a distinction some brokers have failed to grasp, to their cost. However, Flow Traders cannot be prohibited from trading ETNs based on digital currencies – the question remains when regulators will wave through the first Bitcoin ETF. That may still take a while.