Investment Case for
Ethereum
While many other cryptocurrencies can, as an analogy, be
seen as a tank full of gas, that is worth – well the value of the gas in it,
there is nothing to power with that gas. Ether is part of the Ethereum network,
and it is the gas tank powering its blockchain. Ethereum is not the only
network like this, but arguably the best known and best developed one.
As many businesses already see the value of using blockchain
technology, some, like e.g. DocuSign, are already basing their
development on the Ethereum blockchain. To execute a transaction on the
blockchain, you're charged a fee in Ether.
As it is expected that more and more real-world applications
are powered by the Ethereum blockchain, there could likely be an increasing
demand for Ether, which could potentially keep increasing the value of the
cryptocurrency.
Performance and Growth Potential
The performance of Ether has been strong against main indices over the
past two year periods, providing a new source of potential returns. However,
these impressive growth numbers come at a cost of high volatility meaning
investors could lose a significant portion of their allocation if they bought
in at the wrong time. Analysts expect the volatility of certain
cryptocurrencies to reduce as the market becomes more regulated and further
institutionalised.
|
|
1 month
|
3 months
|
1 year
|
2 years
|
|
Ether
|
22.1%
|
107.2%
|
475.5%
|
468.3%
|
|
Bitcoin
|
49.6%
|
170.8%
|
305.1%
|
689.2%
|
|
S&P 500
|
3.7%
|
11.7%
|
16.3%
|
49.8%
|
|
US Bonds
|
0.5%
|
0.9%
|
5.9%
|
15.5%
|
|
Gold
|
5.7%
|
-1.0%
|
20.2%
|
41.8%
|
|
Oil
|
2.7%
|
5.3%
|
3.8%
|
13.8%
|
|
FTSE 100
|
3.1%
|
10.1%
|
-14.3%
|
-4.0%
|
|
Eurostoxx
|
1.7%
|
11.2%
|
-5.1%
|
18.4%
|
Source: Bloomberg. All data as of 01.03.2021
Past
performance is not a guarantee of future returns.
Correlation and Diversification:
One argument for an Ether allocation is its low correlation to other
widely held asset classes both in periods of market calm and turbulence.
|
|
S&P 500
|
US Bonds
|
Ether
|
Gold
|
Oil
|
EM
ccy
|
FTSE
100
|
Euro
stoxx
|
EUR/
USD
|
GBP/
USD
|
|
S&P 500
|
-
|
0.78
|
0.34
|
0.74
|
0.83
|
0.83
|
-0.27
|
0.42
|
0.32
|
0.25
|
|
US Bonds
|
0.78
|
-
|
0.05
|
0.94
|
0.86
|
0.85
|
-0.64
|
0.00
|
-0.07
|
-0.23
|
|
Ether
|
0.34
|
0.05
|
-
|
0.22
|
0.07
|
0.22
|
0.01
|
0.23
|
0.78
|
0.58
|
|
Gold
|
0.74
|
0.94
|
0.22
|
-
|
0.79
|
0.78
|
-0.75
|
-0.13
|
0.12
|
-0.12
|
|
Oil
|
0.83
|
0.86
|
0.07
|
0.79
|
-
|
0.81
|
-0.47
|
0.17
|
0.08
|
-0.06
|
|
EM ccy
|
0.83
|
0.85
|
0.22
|
0.78
|
0.81
|
-
|
-0.32
|
0.34
|
0.11
|
0.11
|
|
FTSE 100
|
-0.27
|
-0.64
|
0.01
|
-0.75
|
-0.47
|
-0.32
|
-
|
0.71
|
-0.05
|
0.30
|
|
Eurostoxx
|
0.42
|
0.00
|
0.23
|
-0.13
|
0.17
|
0.34
|
0.71
|
-
|
0.11
|
0.45
|
|
EUR/USD
|
0.32
|
-0.07
|
0.78
|
0.12
|
0.08
|
0.11
|
-0.05
|
0.11
|
-
|
0.71
|
|
GBP/USD
|
0.25
|
-0.23
|
0.58
|
-0.12
|
-0.06
|
0.11
|
0.30
|
0.45
|
0.71
|
-
|
Source: Bloomberg. Data as of 01.03.2021
Summary
Benefits of Ethereum:
- High growth potential vs traditional asset
classes;
- Low correlation to other asset classes and
diversification;
- Potential for improved risk-adjusted returns in
a multi-asset portfolio.
Risks
of Ethereum
- Ether can be very volatile
- The price of Ether can go down as well as up and
your capital is at risk
Introducing ETHetc:
ETC Group Physical Ethereum - Primary Ticker: ZETH
ETHetc - Physical Ethereum ETC (ZETH) is an exchange traded
cryptocurrency (ETC) that tracks the price of Ethereum. The ETC is 100% physically backed by Ethereum and its primary listing is on Deutsche Börse’s electronic trading system XETRA. The product is central counterparty cleared (CCP), providing investors
with a transparent, safe, and liquid way to gain exposure to the price of Ethereum. Each unit of ZETH gives the holder a claim on a predefined amount of Ethereum.
An Easier
Way to Invest in Ethereum
Investing in ETHetc
- ETC Group Physical Ethereum (ZETH) is as simple as buying shares through your
broker or bank. Unlike investing directly in Ethereum, there is no need to engage with the
technical challenges of setting up a cryptocurrency wallet to store Ethereum. Your units of ZETH are safely held with your broker or bank,
thus removing the risk of losing your investment due to a lack of knowledge of e.g. how cryptographic keys work.
Central
Counterparty Cleared on Deutsche Börse XETRA
Clearing through
the Deutsche Börse CCP system reduces the counterparty risk market participants
are exposed to and provides anonymity. Using a CCP also reduces risks related
to late settlement or legal disputes if one party breaches the contract.
Invest in
Ethereum on a Regulated Exchange
ZETH
is traded on XETRA, one of the largest exchanges in Europe. As Deutsche Börse
is a regulated exchange, this means that investors can trade with confidence
knowing that all market participants are strictly vetted and carefully
monitored to prevent market abuse. The alternative is to buy bitcoin on cryptocurrency exchanges,
most of which are unregulated or do not have as strict security and compliance
standards.
Ample Liquidity
The issuer has partnered with world-class liquidity
providers and authorised participants (APs) to ensure ample liquidity,
resulting in tight spreads on-exchange and the ability to create or redeem
units of ZETH on the primary market. ETC Group’s preceding product, the BTCetc
(Ticker: BTCE) has strongly benefitted from the solid network of liquidity
providers set up by the issuer for its products, making it one of the most
liquid products on the Deutsche Börse XETRA exchange in recent months[1].
Physical Redemption
Investors have the option to redeem their units of ZETH directly for Ethereum. As an additional layer of protection for
investors, every transaction must be confirmed by the issuer and a reputable
third-party administrator to ensure that no Ethereum can be misappropriated due to misconduct or
negligence on behalf of the issuer.
Safe
Custody
The issuer stores
the Ethereum backing all units of ZETH in circulation with BitGo Trust Company, a secure,
regulated custodian, purpose-built for holding digital assets. Strict KYC and AML standards
ensure that the provenance of all cryptocurrency in custody has been vetted.
Advantages of the
ETHetc (ZETH):
- Ethereum exposure simplified: exchange-listed,
regulated and secure;
- Buying and selling the Ethereum ETC is as simple as trading any normal share;
- You can trade through your regulated broker,
on regulated exchanges with a central clearing mechanism;
- You don’t need to manage a crypto wallet or
trade on unregulated crypto exchanges;
- You don’t need to manage cryptographic keys
or blockchain technology.
Risks of Trading ETHetc - ETC Group Physical Ethereum
- Cryptocurrencies like Ethereum can be highly
volatile.
- Like equities, an investor’s capital is
fully at risk and you may not get back the amount originally invested
- Exchange rate fluctuations can also have both
a positive and negative effect on returns
- Past performance of a product is no
guarantee of future performance
- The product may not be a suitable investment
for all investors and each investor should determine the suitability of its
investment in light of their own circumstances
- For a full, list of risks associated with
the Ethereum ETC product, please consult the prospectus.
Ethereum
Trading vs ETHetc - ETC Group Physical Ethereum
Here’s how ZETH provides a safer, easier and more familiar
experience for investors:
|
Feature
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Ethereum trading on a crypto exchange
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ETHetc (ZETH) on XETRA
|
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Accessibility
|
Buying Ethereum may require the investor to set up an account with a so-called ‘cryptocurrency exchange’, which can be a lengthy and time-consuming process.
Such ‘exchanges’ are mostly unregulated entities and investors face increased risk of money laundering and market manipulation. Money laundering is not really a risk to the investor, market manipulation definitely can be.
|
the Ethereum ETC can be purchased on Deutsche Börse (XETRA), one of the largest stock exchanges in Europe in terms of both market capitalization and monthly trading volume. Virtually every broker in the world should have the ability to buy products traded on XETRA for its clients.
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Technical and Complex
|
Setting up a cryptocurrency wallet isn’t easy and preventing theft or loss of value due to other reasons (e.g. losing the keys) even harder. Blockchain wallets are not like credit cards or bank accounts, users of Ethereum can’t chargeback fraudulent transactions or show up with their ID at the bank desk to recover access – what is lost is usually lost forever.
|
ZETH keeps Ethereum backing the product at a reputable, safe, regulated and insured depositary called BitGo Trust Company. Deposits are insured by Lloyds of London against hacking and white-collar crime up to the value of $100 million. BitGo is a regulated trust and all cryptocurrency is stored air-gapped in cold storage in their vaults.
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Liquidity Concerns
|
Investors interested in purchasing big volumes of Ethereum face access problems described above multiplied by the number of ‘cryptocurrency exchanges’ they need to connect to in order to tap into an acceptably big pool of liquidity.
Secondly, IT systems of many ‘cryptocurrency exchanges’ are technologically inferior to the systems operated by established stock exchanges, and this fact makes top-notch liquidity provision very difficult or even impossible.
Finally, not every professional market-maker is participating on ‘cryptocurrency exchanges. Market-makers face the same technical, access, legal and regulatory challenges and issues alongside with investors. For that reason, some market-makers are willing to provide liquidity only on regulated stock exchanges.
|
ZETH shares many benefits with traditional ETFs/ETPs – as it is exchange listed and supported by an ecosystem of market makers and Aps, there is guaranteed two-way pricing available throughout the trading day. The product team behind ZETH have contracted multiple professional market-makers to translate fragmented bitcoin liquidity into concentrated on-Exchange ZETH liquidity. Through direct connection to the underlying asset via the create /redeem mechanism, ZETH can provide liquidity for both very large and very small trades, levelling the playing field between investors.
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|
Legal Restrictions
|
Some investors might not be allowed to buy or hold Ethereum, due to restrictions imposed by the regulator or investment mandate.
|
ZETH was approved for trading on the regulated market. but there are countries and jurisdictions where ZETH is not available and where regulation may differ. It is advised to check with your broker or bank on these questions.
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Regulatory Capital Restrictions
|
Ethereum holdings might not qualify to be accepted as part of capital required by the regulator for various reasons.
|
ZETH is a security and is traded on Deutsche Börse (XETRA). It is much easier to qualify holdings of ZETH as regulatory capital than holdings of Ethereum.
|
|
Money Laundering Concerns
|
Ethereum is a relatively new asset class, and it is difficult (but not impossible) to conduct due diligence and establish sources of funds. It is challenging for investors willing to invest in Ethereum to establish with the necessary certainty that the Ethereum they are buying is not proceeds of crime.
|
Only Ethereum screened with market leading chain analysis too makes it into custody backing the issued instruments. ZETH is a fully fungible product (which ensures superior liquidity), but investors wishing to create units of ZETH in exchange for Ethereum (instead of purchasing it on regulated exchange) have either to be a regulated Authorised Participant (“AP”) themselves or have such AP represent them as an agent. APs are licensed and regulated financial intermediaries, and as such are under very strict anti-money-laundering obligations. This means that investors buying ZETH securities can be sure that any Ethereum they are getting exposure to (and which they can receive should they want to do so due to fungibility of the product) is clean.
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Settlement & Post Trade Risk
|
Parties buying Ethereum are exposed to counterparty (settlement) and post-trade price risks. Your counterparty can go insolvent after receiving the investor’s part of the settlement (e.g. A ‘cryptocurrency exchange’ going out of business while the investor has cash of bitcoin deposit with it) or it may not honour the favourable price of a trade.
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ZETH is a security, which is eligible for central counterparty clearing by Eurex Clearing. You can settle trades in ZETH using the Delivery-versus-Payment mechanism of Clearstream system, which effectively eliminates any counterparty risk. Investors can also use well-established business-processes for securities lending or using ZETH as collateral in order to facilitate, streamline and considerably de-risk any lending operations involving bitcoin.
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Trading Information
Visit the ETHetc- ETC Group Physical Ethereum Fund Page