Crypto ETNs, Caveat Emptor

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3 mins read

After the Bitcoin ETFs in the US, the crypto ETNs in the UK are almost here. They will only available be to professional investors. That's a prudent choice.

Despite the Bitcoin ETFs breaking all sorts of records, including fastest ever to reach $10bn in assets, the ETNs should be approached with extreme caution. The average investor (retail or not) views all Exchange-Traded Products (ETPs) as the same, until they are not.

And believe me they are not.

If you want to read it straight from the regulators, here is the explanation from FINRA and here is the one from SEC.

Here is the part that you should pay attention to:

Some ETPs are more similar to mutual funds than others. ETFs, like mutual funds, are pooled investment funds that offer investors an interest in a professionally managed, diversified portfolio of investments. But unlike mutual funds, ETF shares trade like stocks and can be bought or sold throughout the trading day at fluctuating prices. They're also subject to bid-ask spreads, which represent the difference between the highest price a buyer will pay and the lowest price at which a seller will sell shares of a stock at any given time.

On the other hand, while ETNs also trade like stocks, they're more similar to corporate bonds in that they're debt issued by a financial institution and subject to the credit risk of that issuer. Unlike a mutual fund or ETF, an ETN has no underlying portfolio of assets. Unlike a corporate bond (but similar to a structured note), an ETN represents a promise to pay a return at maturity reflecting the performance of some benchmark or index, so repayment at maturity may be greater than or less than par value, or face value. Some ETNs might make periodic distributions, but others don't.

If reading the parts I have emphasized above didn't give you pause, they should. The ETNs are nothing but a promise by the issuers, and you are the mercy of their benevolence (i.e. as long as they are making money off of you). The history of ETNs is riddled with colossal blowouts, here is a famous one on volatility, here's another on oil.

Crypto, including Bitcoin, is a volatile asset with historical volatility well in excess of 100% at times. That makes it a fairly poor candidate for ETNs.


Spot crypto in cold storage self-custody should be your first choice. I understand market restrictions and legal limitations make the ETFs a desirable products for many who cannot or do not want to self custody.

The crypto ETNs however, in my opinion, should be avoided all together.