XBT Provider comes along with another way to own ether, indirectly. After its success with bitcoin, this week XBT introduced a pair of exchange traded notes based upon the ether cryptocurrency. The ether notes join two bitcoin ones and will which traded outside the US on the Nasdaq Stockholm Exchange.
Exchange traded notes are debt and instead paying an interest rate, the rate paid is based on something else, such as the price change of bitcoin or ether. For example, assume you spend $10,000 in exchange for the note and later ether’s price increases 10%, then your investment is now worth $11,000.
Exchange traded notes are common in the US for about ten years. When issued by an investment banks, such as Barclays, Credit Suisse, Goldman Sachs, and others, the bank takes your money and promise to pay you later when the notes are due. Between then and now, the exchange traded notes trade likes stocks and hopely the market price tracks the underlying value of the asset.
XBT’s exchange traded notes are different than the US variety. First, the ether notes have no maturity date, but instead are open ended. Secondly, the note are hedged. This means that when XBT takes your money from the ether note sale and they then purchased an equivalent amount of ether, so your notes are backed; this often does not happen with a US issued exchange traded notes.
Given custody and other issues associated with a direct cryptocurrency investment, synthetic crypto-products may be beneficial for both retail and institutional investors.
This post is for educational purposes only and should not be used for investment purposes.