ETP vs ETF: Understanding the Meaning and Differences of These Investment Products

If you’re new to the world of cryptocurrency investing, you’ve probably heard of ETFs and ETPs, but you may not clearly understand what they mean or when to use one or the other. Both are trading tools listed on trading platforms that allow access to digital assets without traditional complications. However, their structures, regulations, and advantages have fundamental differences that every investor should know.

What does ETP mean? Definition and characteristics of platform trading products

ETP stands for Exchange Traded Products. Unlike what many think, ETPs are not funds in the traditional legal sense but structured debt securities with guarantees that are traded daily on trading platforms, similar to how stocks are traded.

ETPs are classified as passive investments designed to replicate the performance of a specific market by tracking an underlying reference index. Their main feature is that they are traded directly between multiple market makers on national exchanges, providing liquidity comparable to traditional securities. They are linked in value to other securities, commodities, or indices, allowing investors to access various markets without directly owning the underlying asset.

The first global multi-cryptocurrency ETP launched by the Swiss stock exchange SIX in 2018 was the Amun ETP, based on the Amun Crypto Basket Index, which tracked the performance of the top five cryptocurrencies by market capitalization and liquidity. At launch, the composition was: BTC (49.7%), XRP (25.4%), ETH (16.7%), LTC (3%), and BCH (5.2%). This product allowed institutional and accredited investors to access multiple cryptocurrencies without needing their own custody.

Bitcoin ETF: The indirect but secure way to invest

ETFs, or Exchange Traded Funds, are funds traded on trading platforms that replicate the trend of a specific index. Think of an ETF as a basket of selected assets according to a reference index. For example, the SPY ETF, the world’s largest exchange-traded fund, tracks the S&P 500 index, which reflects the overall movement of 500 major U.S. companies.

A crucial point is that when you buy an ETF, you do not own the assets directly. Instead, you hold a certificate that proves your ownership of the fund. For Bitcoin, a Bitcoin ETF is a fund based on Bitcoin that can be traded on the stock exchange. When you invest in a Bitcoin ETF, you are investing in Bitcoin indirectly, without needing to store digital coins yourself or worry about their security.

The main advantage of a Bitcoin ETF is that its returns exactly follow Bitcoin’s price. When Bitcoin rises, the ETF rises; when Bitcoin falls, so does the ETF. ETFs simply offer an alternative and more convenient way to invest in Bitcoin, avoiding complicated procedures and risks associated with direct cryptocurrency storage.

Key differences: Why regulators treat ETFs and ETPs differently

Despite their similarities, there are fundamental regulatory differences between ETFs and ETPs. ETFs are formally classified as funds and are subject to stricter oversight under the Collective Investment Institutions Law (Cisa) in many jurisdictions. As a result, regulatory authorities like the U.S. Securities and Exchange Commission (SEC) require companies seeking approval for an ETF to demonstrate that the cryptocurrency futures market is sufficiently stable. This is why the SEC has repeatedly rejected applications for a Bitcoin ETF.

ETPs, on the other hand, do not have the legal classification of funds, allowing them to bypass these stricter regulatory requirements. A spokesperson for the Swiss financial regulator Finma clarified: “It is important to distinguish between ETP and ETF, as ETPs are not subject to the Collective Investment Institutions Law (Cisa).” Due to this regulatory flexibility, products like Grayscale Investment’s Bitcoin Investment Trust are already listed in the U.S. without facing the regulatory hurdles that delay ETFs.

Investing in cryptocurrencies: Choosing between ETF and ETP

Both products offer significant convenience and reduce risks for institutional and accredited investors looking to enter the cryptocurrency space. ETFs allow you to invest in Bitcoin or Ethereum with the security that you won’t lose your coins to theft or inadequate storage. Similarly, ETPs provide access to multiple cryptocurrencies through a single position, without the need to manage complex custody arrangements.

The choice between ETF and ETP depends on your jurisdiction, your investor type, and product availability in your region. In markets like the U.S., where Bitcoin ETF approval has been more restrictive, Grayscale’s ETPs have provided a viable alternative. In Europe, where the meaning of ETP has gained greater regulatory recognition, both products may be available simultaneously.

Conclusion: Understanding the meaning of ETP and ETF is key to investing

Ultimately, both ETFs and ETPs democratize access to cryptocurrencies for investors who want to avoid the complexity and risks of direct storage. The fundamental difference is that ETFs are legally established funds under stricter supervision, while ETPs are structured bonds with less regulatory burden. The meaning of ETP, therefore, represents a more agile and flexible alternative to access digital assets, especially in markets where ETFs face approval barriers.

Understanding these distinctions will help you make more informed decisions on how to invest in cryptocurrencies based on your risk profile and product availability in your region.