Galaxy Digital Holdings and DWS have formed a strategic alliance to launch new crypto products that will trade via exchanges in Europe.
The announcement mentioned that the pair will also “explore other digital asset solutions.” DWS will also be Galaxy’s exclusive partner for cryptocurrency exchange-traded products (ETPs) in the European market. The new securities will be accessible via traditional brokerage accounts.
The ETP Concept
Steve Kurz, Global Head of Asset Management at Galaxy, emphasized the collaboration with DWS as key to the success of the new product.
The partners’ goal is “to enhance our ability to deliver comprehensive solutions to European investors, empowering them to tap into the vast potential and promise of blockchain technology and digital assets in a safe and convenient manner,” Kurz said.
ETPs are securities that follow the value of an underlying asset, index, or financial instrument. ETPs’ values are, in theory, based on the assets they follow, making them a cheaper alternative to mutual funds. But US regulators have warned that the values are not necessarily aligned as markets fluctuate.
The new ETPs by Galaxy and DWS will be based on digital assets like Bitcoin, Ethereum, and NFTs. Allowing investors to track a variety of assets in one security.
Why It’s Important
New digital asset ETPs carry major risks. Yet they appeal to some investors for several reasons. First, they allow for diversification of portfolios by providing exposure to a wide range of assets. Including cryptocurrencies, stocks, bonds, and commodities.
Secondly, ETPs are easily accessible for both retail and institutional investors as they trade on stock exchanges. This means investors can invest in various assets without the need for direct ownership or dealing with complex trading platforms.
Additionally, ETPs have high liquidity, leading to tighter bid-ask spreads and lower transaction costs. They also tend to have lower fees and operating expenses, resulting in savings for investors. Lastly, ETPs are transparent and disclose their holdings daily, which can help investors make informed decisions about their investments.
For all the perceived benefits, the risks are real. The Commodity Futures Trading Commission (CTFC) has issued a warning about ETPs. It cautions that they do not necessarily behave like traditional exchange-traded funds or mutual funds that invest in stocks, bonds or other asset classes. The CFTC points to potentially severe disparities between the value of the commodity pool’s shares, and the values to which the underlying asset or assets may rise or fall.
The CTFC warns traders not to hold any unwarranted hopes about the long-term profitability of ETPs.
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