No Crypto ETFs in Europe? Why Swiss ETPs Are the Solution

November 22, 2018 was a special day for the Swiss financial world. That was the day that the 21Shares Crypto Basket ETP was launched on the Swiss Stock Exchange – the first Exchange Traded Product (ETP) in Switzerland with cryptocurrency serving as the underlying asset. For the first time, the product allowed private and institutional investors the opportunity to invest in cryptocurrencies without requiring additional infrastructure such as digital wallets. Prior to this product, there were other instruments outside Switzerland that constituted the crypto market, including Exchange Traded Notes (ETN) in Sweden and the first Bitcoin futures in the USA. However, the 21Shares Crypto Basket ETP was the first physically backed crypto ETP in the world to be traded on a regulated exchange.

Five years later, in January 2024, the first Bitcoin Exchange Traded Fund (ETF) was approved in the USA. The price of Bitcoin rose dramatically.  But what has been possible in the USA since 2024 has already been working in Switzerland for somewhat longer. ETPs and ETFs are not the same, but they are defined differently in different countries. But let’s take it from the top.

IThe big advantage of ETPs according to the Swiss definition is that there are simplified requirements regarding the underlying assets. This gives investors access to investment classes that wouldn’t otherwise be available to them – including commodities such as precious metals or energy, and cryptocurrencies. A key difference in Switzerland lies in segregated assets: ETFs are considered segregated assets, which remain protected in the event of the issuer’s insolvency, while ETPs aren’t segregated assets, but must always be 100% collateralized in Switzerland. This significantly minimizes the issuer default risk.

In contrast with the USA, no ETFs on cryptocurrencies have been permitted in Europe to date. In the USA, the first such ETF was approved only after years of resistance from the Securities and Exchange Commission and an extensive court case. In the EU, the regulatory framework for ETFs (UCITS) prohibits cryptocurrencies from serving as underlying assets. UCITS guidelines require broad diversification and high liquidity of the underlying assets. Cryptocurrencies are volatile and have a limited regulatory framework, which is why they are considered unsuitable. That is why in the EU it’s most often ETNs that are used. However, these are not usually physically collateralized, which introduces issuer default risk.

For these reasons, Switzerland is uniquely positioned in Europe with its ETP offering. Through full collateralization, issuer default risk is reduced in contrast with ETNs. Buying an ETP requires the same infrastructure as when buying equities. All that’s required is a securities custody account. This makes trading much easier than buying physical commodities or cryptocurrencies using digital wallets.

ETPs have established themselves as an important investment class in Switzerland, particularly in the realm of cryptocurrencies and commodities. There is a current trend toward expanding the range of products offered, for instance through structured ETPs with active risk management and products that reflect sustainable investments. Regulatory developments in Europe could also evolve over time. Due to its stable regulatory framework conditions, Switzerland remains an attractive location for innovative financial products.