- Bradley Duke’s BTCetc product has soared since it launched in June 2020.
- The rise in bitcoin prices has sent investors flocking towards “entry products,” he said.
- But regulators and critics are making heightened warnings about “volatile” bitcoin.
It’s been a tumultuous few months for Bradley Duke. The chief executive of ETC Group has seen the value of his company’s 200% Crypto Crypto Exchange product grow by around 200% in 6 months as interest in digital currencies has increased.
Duke and ETC’s fortunes have been driven by the massive surge in the price of bitcoin. It has risen more than 280% over the past year to $ 32,284 on Friday morning. Bitcoin hit an all-time high of nearly $ 42,000 earlier this month before slipping last week.
Retail investors, and even some organizations now, have rushed towards products such as the Crypto Exchange Traded (known as the BTCetc or BTCE), which tracks the price of bitcoin and is listed on German XETRA and Six Swiss exchanges.
Duke says the fund had about $ 475 million in assets under control two weeks ago (though the figure will have dropped last week along with bitcoin), having launched in June last year alone. And the product’s trading volumes compete with some of Europe’s largest exchange-traded funds: In the first week of the year, average volumes were around € 50.4 million ($ 61.2 million) a day, according to Deutsche Boerse data, and reaching a record level of €. 92.6 million as of January 11.
“It’s great that we’ve managed to catch this wave,” Duke told Insider. “It’s a wave, in the end, and there’s a lot to be said for timing.”
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But Duke doesn’t mean the wave is necessarily on the verge of a crash. “There has definitely been a fountain, to continue the wave conversion,” he said. He quotes the huge COVID-19 stimulus packages released by governments and central banks, and says they have fired “concerns about inflationary or devaluing forces” on national currency and helped raise the price bitcoin.
Cryptocurrencies remain highly controversial, however, largely because of their wild volatility. If the price of bitcoin plummets as it did in the past, the value of investments in even regulated products like BTCE could fall to near nothing. Such concerns prompted the UK’s financial watchdog to warn this month that investors in bitcoin could “lose all their money.”
Bitcoin ETPs put ‘regulatory wrappers’ around crypto
Duke is reluctant to advise on bitcoin’s price path, saying: “I don’t know what’s going to happen.”
And yet he argues that exchange-traded products like BTCE have been a major factor in making institutional investors feel more comfortable about cryptocurrencies, which has helped support prices.
BTCE lets investors access bitcoin without having to buy the digital currency on unregulated exchanges, for a 2% fee. It tracks the price closely, is cleared centrally, and units can be redeemed for bitcoin or cash.
Supervised by German and Swiss watchdogs, BTCE puts “regulatory wrapping around an unregulated asset class,” Duke said.
He says the company wanted to build an “entry product” that “ticks many of the boxes for the institutional investor.” Duke says: “It definitely started out by being primarily retail and that end of the spectrum, and then it definitely changed in composition to the more institutional one.”
The price of Bitcoin has received ‘support at all levels’ in recent months
Supporters of cryptocurrency argue that institutional investor interest is a key reason that the price of bitcoin is not likely to suffer a dramatic dive, as it did in 2018 when it dropped from a peak of more than $ 19,000 to around $ 3,000 in just over a year.
On Wednesday, BlackRock moved to add bitcoin derivatives to two of its funds. Billion investors like Paul Tudor Jones and Stanley Druckenmiller have also invested, suggesting that it can be a diversifier in a portfolio in times of gold-like uncertainty.
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Duke says institutional investors are one reason that bitcoin appears to have received “support at all new price levels over the past six months.” He added: “It feels a little different to how it was before. You feel there are a lot more people out there, who are coming in, and who are still and not interested in making a profit short term only. “
And yet most institutional investors are still skeptical. A survey by Deutsche Bank last week showed that investors rated bitcoin an 8.7 out of 10 on a “bubble” rating.
Gerald Moser, chief market strategist at Barclays Private Bank, said in a note that bitcoin “seems to fail when diversification is most needed, such as during a sharp downturn in financial markets.” He also said that bitcoin’s volatility “makes the asset almost irrecoverable.”
Some bitcoin regulators have ‘lost a trick’
Duke insists that products like his are essential to help cryptocurrency mature as a market. But he is not worried that new rules will reduce bitcoin’s appeal, in part because regulation is “a very difficult thing to do.”
He says regulators like the UK’s Financial Conduct Authority that have clashed with retail consumer access to bitcoin products “have lost a trick.” (The FCA says it protects customers for a “highly volatile” asset.)
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Duke argues that regulators should “take a pragmatic approach and say, the best way we can encourage this growth in services, but in a sensible way where we do not allow bad actors to proliferate.”
And yet for now, regulators are looking to increase scrutiny of cryptocurrencies. Treasury secretary nominee Janet Yellen suggested last week that bitcoin use should be curtailed as transactions are “primarily for illegal financing.”
In terms of investor interest in products like BTCE, the bitcoin price is all-important. The next few weeks appear to be key, with a $ 40,000 rise or fall to $ 25,000 or below both possibilities. One thing is certain, the arguments over cryptocurrencies will continue to rage.