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Bitcoin versus ETFs: The Importance of Regulations

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All economies experience recessions, booms, and overall growth – Bitcoin is no different. Since its introduction, Bitcoin has experienced vast fluctuations, both attracting and scaring off many investors across the world. Since Bitcoin is not regulated, how can we better manage the Bitcoin landscape and protect the stakeholders involved? By developing, enforcing, and revisiting standardized regulations on a global scale. While Bitcoin is seen as a new asset class, regulations, and regulators are essential to establishing a safer market and ensuing trust for continuous investment. ETFs on the other hand are closely regulated, so what about Bitcoin Themed ETFs? Is it possible to get a mix of Bitcoin and ETFs?

A leap into ETF regulations

ETFs have been established as a successful financial innovation, and have changed the way we look at investments due to their dependable nature, their ability in further diversifying portfolios, providing access to market-shifting megatrends, transparency, and exposure to specific themes.

It is important to note that ETFs are regulated differently based on geography. ETFs issued in the United States are managed and regulated differently than those in Europe. In Europe, most traded ETFs are regulated in accordance with UCITS, or Undertakings for the Collective Investment in Transferable Securities. Under the UCITS directive, ETFs are subject to well-defined requirements that enable investors to have a trusted, holistic view of their investment portfolio. The requirements include having clear investment guidelines, diversified ratios, full information disclosure, and investment limits.

UCITS ETFs also need to have strong risk management and should be used through an independent depository. This prevents the depositary from reusing the assets they hold in their account and ensures that the fund’s assets cannot be seized to pay creditors. This provides investors with the reassurance and security that even in times of financial difficulty, they would have a backup plan that they can fall back on.

With the influx of investors, the introduction of regulations and international standards will enable a smoother, more trusted process for investors while also fueling exponential growth in the market. Regulations are put in place to ensure a standardized, universal set of guidelines exist for stakeholders to respect and abide by. This minimizes risk and fraud while protecting investors and their investments.

A leap into Bitcoin and ETFs

Investors today have more ways to invest in Bitcoin than ever before. They can buy Bitcoins directly, or even indirectly, as many investors choose to. Despite the recent backlash against Bitcoin and cryptocurrencies in general, interest in Bitcoin and the Blockchain economy is still on the rise, and investment options in the Bitcoin ecosystem keep multiplying. Yet, cryptocurrencies are currently unregulated assets in Europe, and this constitutes its major flaw.

Theoretically speaking, many investors would be interested in the decentralization aspect of Bitcoin, as they consider it can provide a safety net should anything happen. Fortunately, it is now possible to invest in the crypto and Bitcoin Thematic through equities, all the while being UCITS compliant by choosing the Melanion Bitcoin Equities UCITS ETF.

Melanion Bitcoin Equities UCITS ETF

Melanion Capital therefore introduced the Melanion Bitcoin Equities UCITS ETF, which ensures a way to invest in the Bitcoin Thematic, through equities, while benefiting from ETF regulations, a first on the European market. The Melanion Bitcoin Equities UCITS ETF is, in a way, the middle ground between Bitcoin and ETFs, as it allows investors to embark on the Bitcoin journey without having to buy Bitcoins, through the regulations of UCITS ETFs.

It is important to point out that Melanion Capital’s Bitcoin Equities ETF is not just another crypto thematic ETF, as it was specifically designed to capture the Bitcoin thematic exposure by carefully tracking selected stocks and equities. Since it abides by the UCITS regulation, its Melanion Bitcoin Exposure index was built to ensure diversification, representativeness, independence and transparency, making it a “regulated” way to invest in the companies that operate in the Bitcoin sphere.

Its original methodology allows investors to get exposure to the Bitcoin Thematic without any direct investment in Bitcoin or any cryptocurrency, therefore providing individual investors the opportunity to tap into the Bitcoin ecosystem within a regulated framework.

The results of the quantitative model Melanion Capital has built to construct a portfolio specifically designed to maximize the exposure to the Bitcoin led to conclude that weighting stocks according to their Beta scores (the historical sensitivity) provides maximum benchmark exposure. The Melanion Bitcoin exposure index has been designed to provide an exposure to the Bitcoin price fluctuations.

To find out more about how to combine the framework of traditional finance with an indirect exposure to Bitcoin through equities, you can download Towards Bitcoin ETFs: The Ultimate Guide. Also, feel free to book a (free) one-on-one consultation with Melanion Capital’s experts. Our Managing Director and designer of the Bitcoin Equities UCITS ETF will be happy to give you investment tips and tricks, and guide you through your journey. Reach out to us on etf@melanion.com, we’re here to help!

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