By Jean-Marie Mognetti, CEO of CoinShares
The Spot Bitcoin and Ethereum ETFs in the United States ignited a new wave of institutional investment as previously sidelined buyers have taken advantage of this new asset class. The inflows thus far have been remarkable and the development of exchange-traded funds (ETFs) in the U.S. market is poised to accelerate.
Over the course of 2024, we have seen the tremendous opportunity that the digital asset industry has moving forward with the approval of spot Bitcoin and Ethereum ETFs in the United States. In the recent weeks following the U.S. Presidential election, digital asset fund flows in the U.S. continued to grow exponentially. During the week of the election following President Trump’s successful campaign for another term, the US saw $1.95 billion in inflows into digital asset ETFs, with the year to date total in the US reaching $29 billion. But now that these products have been introduced to the market, where do we go from here?
While the United States was late to approve regulated crypto investment vehicles relative to its peers, it stands to benefit from the wealth of experience accumulated in European markets over the past decade. With a new, and seemingly favorable, administration set to take the reins in 2025, what could the digital asset industry expect the ETF landscape in the U.S. to look like? Having played a key role in advancing publicly traded crypto products in Europe as CEO of CoinShares, reflecting on the European experience can help our U.S. counterparts navigate this new terrain and more seamlessly develop their own crypto markets.
Europe’s Pioneering Role
Europe has long been at the forefront of adopting crypto asset classes, setting global standards for safe entry into the crypto ecosystem for both institutions and the public. Europe’s first regulated crypto product launched in 2015, on the Nasdaq Stockholm, with the debut of a Bitcoin-backed ETP This milestone paved the way for further innovation, with Europe’s first Ether ETP following in 2017.
The digital asset ETP approval regulatory journey in Europe has been complex and multifaceted. The original CoinShares XBT Provider Bitcoin ETP, followed a structure similar to Gold ETPs in Europe. However, this original product was the sole digital asset ETP available for two years, before Switzerland’s Six Exchange provided a pathway for others to launch Bitcoin (and eventually other) ETPs on the exchange. Following this development, Germany’s Deutsche Börse AG followed suit in 2020, leading to a large capital infusion into digital asset ETPs, providing significant AUM in these products for the first time since inception in 2015.
Since these initial product launches, the European market has continued to expand and now offers over 100 different products, referencing roughly 40 different underlying assets, from 20 different issuers. The landscape now includes physically-backed ETPs, synthetically-replicated products, and blended offerings that provide exposure to multiple cryptocurrencies or crypto-related assets. Companies such as CoinShares, 21Shares, WisdomTree, VanEck, Valour, Invesco, Hashdex, and ETC Group, amongst others, now offer an assortment of crypto ETP products to European investors.
While the growth of the crypto ETP market in Europe has faced challenges, including an ever-evolving regulatory landscape, these obstacles have driven innovation and led to the creation of more sophisticated products and robust infrastructures. Europe’s proactive approach to creating a regulatory environment that balances innovation with investor protection has been instrumental in the growth of crypto ETPs. As the U.S. market develops, finding this balance will be crucial for sustainable growth and investor confidence.
Infrastructure Development
While crypto ETPs function similarly to their United States ETF counterparts: both are open ended and exchange traded. As a result, considering and implementing the appropriate infrastructure is critical to ensure longevity and accessibility. This includes accessing appropriate trading venues, engaging market makers and regulated custody solutions, and ensuring adequate on-exchange liquidity .
Major European exchanges like Deutsche Börse Xetra, SIX Swiss Exchange, and Euronext now list crypto ETPs, providing investors with secure and streamlined methods to invest in cryptocurrencies. This infrastructure development has been crucial in fostering trust and facilitating broader adoption.
The development of infrastructure didn’t happen overnight. It required close collaboration between ETP issuers, exchanges, market makers, and regulators. Each player in the ecosystem had to adapt to the unique challenges presented by crypto assets. For instance, exchanges have been at the forefront of working with their regulators to approve digital assets as eligible underlyings
As the market has matured, we’ve seen a marked improvement in liquidity across European crypto ETP offerings. This has been achieved through a combination of factors, including increased competition among issuers, growing investor interest, and the entry of established financial institutions into the crypto space. Liquidity provisioning has been another critical area of development. In the early days of crypto ETPs, liquidity was a significant concern for institutional investors. However, as the market has matured, we’ve seen a marked improvement in liquidity across European crypto ETP offerings. This has been achieved through a combination of factors, including increased competition among issuers, growing investor interest, and the entry of established financial institutions into the crypto space.
The Importance of Multiple Custodians
One of the most critical lessons learned is the importance of having multiple custodians for crypto ETPs. The crypto markets operate 24/7, and technical issues can occur at any point in the trading process – even on major exchanges like the NYSE.
To minimise the impact of such technical glitches, asset managers must have robust backup plans in place. This includes arrangements with multiple custodians to ensure trading and settlement can continue with minimal disruption. For instance, if a major custodian like Coinbase were to encounter technical difficulties, CoinShares’ experience has taught us to be prepared with alternative custody solutions.
Looking Ahead
As the global leader in financial markets, the U.S., following Donald Trump’s election victory for another term as president, is well positioned to scale its domestic market for digital asset ETFs, and a favorable regulatory environment primed for innovation. With the advantage of hindsight, the U.S. can leverage Europe’s decade-long experience with crypto ETPs to avoid pitfalls and accelerate crypto adoption. The key takeaways include:
- Understanding and catering to diverse customer needs with a range of product offerings.
- Developing robust infrastructure, including reliable trading venues and liquidity providers.
- Working closely with regulators to create a balanced environment that fosters innovation while protecting investors.
- Implementing strong risk management practices, particularly in terms of custody arrangements.
By leveraging these lessons, as the industry enters another bull cycle, the U.S. can accelerate the development of its crypto ETF market, providing investors with secure and regulated access to this emerging asset class. The global crypto landscape is evolving rapidly, and collaboration between markets will be crucial. As European pioneers in this space, we at CoinShares look forward to sharing our learning and expertise as we lead the industry forward towards a robust, global crypto ETF ecosystem.
Crypto is Poised to Improve Regulated Markets, Not Disrupt Them
By Aaron Kaplan, co-CEO, Prometheum Inc.
The crypto industry has surged in the wake of post-election optimism, fueled by expectations of a crypto-friendly administration. Nearly all prices are up—led by Bitcoin’s crescendo to $100,000—buoyed by the expectation of easing regulatory burdens and an administration that seems to favor crypto. This feels like the long-awaited moment when crypto finally upends traditional finance.
However, the reality is far more nuanced.
Over the past several years, the crypto ecosystem has become deeply intertwined with traditional finance. Financial institutions are no longer bystanders in the digital asset space; they are key players. Giant firms like BlackRock, Fidelity, and Franklin Templeton have launched products that merge crypto innovations with conventional investment frameworks, adding legitimacy and scale to a once-nascent industry.
This entanglement reflects a broader trend. Rather than replacing traditional financial infrastructure, cryptographic assets are becoming an extension of it. This transformation is being driven by the integration of digital asset securities (DAS) and their underlying distributed ledger technologies (DLT) into traditional markets—a critical yet misunderstood innovation.
From Digital Asset Securities to Digital Markets
Digital asset securities–any securities issued and transferred on a blockchain–combine the regulatory oversight of conventional finance with the speed and efficiency of distributed ledger technology. The term is widely misunderstood. DAS encompasses a wide range of potential assets beyond cryptocurrencies, including equities, debt, structured products, treasuries, ETFs, mutual funds, and money market funds.
The benefits of issuing securities on a blockchain are significant: faster settlement, fewer trade fails, more transparency, and efficient product issuance and distribution. For example, firms like BlackRock have experimented with tokenized money market funds that allow 24/7 asset transfers, real-time dividend accrual, and on-chain distributions.
Financial institutions and market participants recognize the benefits of DAS and are looking to introduce these products into regulated markets. To accommodate this, securities market infrastructure will need to transition from its current ‘electronic’ state to a digital one based on DLT and cryptographic representation of assets. This unlocks greater efficiencies, which enables product issuers to innovate new products.
A similar transition occurred in the 1980s when markets moved from paper based asset representation to electronic, creating the foundation for faster trading and the introduction of new ways to access investments, such as ETFs, that took advantage of the new electronic markets infrastructural efficiencies to offer investors better products.
Shifting from electronic to digital offers the same opportunities, of which we see glimpses of in DeFi markets.
Integrating DeFi’s Innovations into Regulated Markets
When traditional markets are able to incorporate digital asset securities, the innovations developed and refined in the roughly $20 billion decentralized finance (DeFi) market can be applied to the larger financial markets. Instead of disrupting the financial ecosystem, the real opportunity lies in applying these innovations within the $255 trillion global securities market (global equities and fixed income markets as of 2023).
Examples of this are already underway. The aforementioned tokenized money market fund from BlackRock, BUIDL, is effectively a yield-bearing stablecoin – a product born out of DeFi with immense potential. Tokenized stocks, too, are attracting interest as DLNews reported in November that investment in tokenized stocks – led by shares of Coinbase, BlackRock’s iShares Core S&P 500 ET, and Nvidia – moved up 35% to an all-time high of $10 million allocated.
While that figure is small, the trend should not be ignored; investors will gravitate towards more efficient products. Consider an index fund or ETF issued on a blockchain that is able to be offered for 50 basis points less than its traditional counterpart. For Wall Street, it’s easier to bring innovation to traditional markets—where customers are already active—than to force traditional finance participants to navigate the complexities of DeFi.
Regulation BI and the Digital Market Flywheel
Regulation Best Interest (Reg BI) is poised to be a powerful catalyst in this transformation. Reg BI requires broker-dealers to recommend products that serve their clients’ best interests. If two products are identical in structure and exposure—one issued electronically and the other as a digital asset security— and the DAS version has lower costs and greater efficiency, the DAS version should be the default choice.
This creates a flywheel effect. As more digital asset securities enter the market, their cost advantages will drive adoption among advisors and institutions, further incentivizing issuers to adopt blockchain technology. The result is a self-generating cycle that accelerates the transition to digital markets.
The Crypto Boom’s Legacy
As the crypto industry may benefit in the next several years under a friendlier business environment, the most impactful innovations will occur within traditional financial markets. Major sell side institutions are looking to issue existing products digitally in order to take advantage of the cost savings and operational efficiencies of cryptographic tokens. Cryptographic-based, commercially driven efforts by major institutions will drive the integration of digital asset securities into regulated frameworks. This process is quietly transforming market infrastructure–not through disruption, but by making the movement of assets in the bowels of Wall Street faster and more efficient.
Major institutions recognize that digitizing securities markets is simply better business, offering new efficiencies, operational advantages, and above all profit. While the focus is on the price of bitcoin, the legacy of a crypto-friendly administration will be on the modernization of traditional finance– the next chapter of global markets.
Aaron Kaplan is the co-CEO of Prometheum Inc. Its affiliates Prometheum ATS and Prometheum Capital offer an end-to-end, blockchain-enabled ecosystem for the trading (Prometheum ATS) and clearance, settlement, and custody of digital asset securities (Prometheum Capital).