Published: March 23th, 2021
JPMorgan Chase plans to set up an EFT-style cryptocurrency basket. The American multinational investment bank is joining the cryptocurrency revolution after all. The bank’s basket looks a lot like a cryptocurrency exchange-traded fund. However, it targets companies investing in crypto and not direct investments in virtual currencies.
JPMorgan Chase has revealed plans that it will soon launch a cryptocurrency exposure basket (CEB). The product resembles a cryptocurrency exchange-traded fund (EFT). However, it targets companies that have put capital in cryptocurrencies and direct investment in virtual currencies.
The 11 component stocks in the basket in order of their weighted input are MicroStrategy with 20%, Square with 18%, Riot Blockchain, 15%, Nvidia with 15%, and PayPal with 10%. Other constituent stocks are Advanced Micro Devices with 5%, Taiwan Semiconductor Manufacturing, 4%, Intercontinental Exchange with 4%, CME Group, 4%, Overstock.com with 2%, and Silvergate Capital with 2%.
Surprisingly, the list does not include Tesla, which disclosed in February that it has Bitcoin holding worth $1.5 billion.
The bank says the stocks it has selected are businesses that it believes are either directly or indirectly associated with virtual currencies. According to the bank, such associations include Bitcoin holdings, crypto mining products, cryptocurrency technology services, Bitcoin and altcoin trading, and digital payments.
JPMorgan Chase’s cryptocurrency EFT basket follows similar ventures by other mainstream banks. Recently, Goldman Sachs announced the relaunching of its cryptocurrency trading desk, which is set for the end of March. Meanwhile, Bank of New York Mellon, an American investment banking services provider, announced in February, that it will provide cryptocurrency transactions including Bitcoin, on behalf of asset-management clients.
The investment bank’s move is seen as an attempt at sidestepping the Securities and Exchange Commission’s evident reluctance to okay Bitcoin exchange-traded funds. Already, there are applications before the agency for services that would grant proxy exposure to crypto.
Expression of interest done with the SEC comes even as EFTs that track cryptocurrency prices are already operational in Sweden, Jersey, Switzerland, Canada, and Germany. Several firms have lodged just as many applications with the agency for straightforward Bitcoin EFTs. JPMorgan Chase and another asset manager are hoping theirs will be the first to be okayed.
The multinational bank is in the race with KKM Financial, a boutique investment solutions outfit based in Chicago. KKM Financial has applied to have its Valkyrie Innovative Balance Sheet ETF approved by the SEC.
The structured note that JPMorgan Chase has filed to launch measures the equity performance of the 11 companies listed above. Two companies on the list; MicroStrategy and Square, would make up 38% of the basket.
MicroStrategy is a software company that added about $3.2 billion worth of Bitcoin to its balance sheet in February. Square, a payment company that was founded by Twitter co-founder and CEO, Jack Dorsey, has about $200 million worth of virtual currencies in its holding.
Nate Geraci, the president of the EFT Store, a company offering advisory services on exchange-traded funds, said issuers are getting creative to find legal ways of servicing the existing demand. According to ETFGI, a consultancy, Europe has approved more than 20 EFTs with a combined asset of $6.3 billion. Meanwhile, Canada had registered two Bitcoin EFTs by the end of February. Together, the two had an asset base of almost $500 million.
Since the beginning of March, the third Bitcoin EFT has joined the Toronto Stock Exchange. Meanwhile, the relevant Canadian regulatory authority has received filings for at least five more. The applicants include the proposed Horizons ETFs’ inverse Bitcoin fund designed for the firm’s BetaPro range.
According to Deborah Fuhr, the co-founder of ETFGI, launching ETFs in Canada has reduced traction for other Bitcoin vehicles such as the Grayscale Bitcoin Trust. Meaning, EFTs are better investment avenues and are more efficient, Fuhr added.
WisdomTree and VanEck, two of the leading EFT issuers in the U.S. have filed applications with the SEC to introduce plain vanilla Bitcoin EFTs. Other firms that have expressed interest are Kryptoin Investment Advisers and New York Digital Investment Group.
The rate of mainstream cryptocurrency adoption has increased exponentially in the past few months. Whereas most investors prefer to go straight inside by buying virtual coins such as Bitcoin, Ether, and other altcoins, skeptical investors would rather invest in the virtual currency economy without necessarily exposing themselves directly to the volatility of tokens.
Virtual currencies’ volatility has been evident recently. On March 14, Bitcoin spiked to an all-time high of $61,700 before falling to $56,000 only hours later. The coin’s market capitalization has now surpassed that of MasterCard and Visa combined.
The structure and features of CEBs fit the needs and investment objectives of the overly cautious. Ben Weiss, the president and COO of CoinFlip, a firm that runs Bitcoin ATMs, said that the efficiency of baskets of stocks such as CEBs, especially compared to Bitcoin, is yet to be seen.
However, he added that the strategy is viable. Weiss said that JPMorgan Chase’s cryptocurrency exposure is suitable for people who want to invest in the blockchain and cryptocurrency ecosystem in the traditional sense but do not want to worry about the volatility of virtual coins.
Not every market expert is enthusiastic about the EFT solution. Joshua Greenwald, the chief risk officer at Uphold, a cryptocurrency payments platform, said that CEBs could prove dangerous an avenue for acquiring exposure to Bitcoin. Greenwald thinks that the pressure that comes with holding huge Bitcoin positions might create additional challenges to downside leverage, especially in the case of a sell-off.
Whichever way investors look at the products, CEBs could be a gateway drug for conventional financial market investors who want to spread their portfolio to cryptocurrencies. The true exposure they give investors to Bitcoin appears limited on average, Weiss said.
JPMorgan Chase has announced plans to launch an EFT-style cryptocurrency basket. The product gives investors a chance to invest in virtual currencies without worrying about their volatility. The multinational investment announced at the same time that KKM Financial, a Chicago-based investment firm made a similar claim. Cryptocurrency exposure baskets are already operational in about half a dozen countries.