Crypto ETPs – introduction and insights: everything you need to know about exchange-traded products in the crypto space

For many investors, getting started with cryptocurrencies is still a challenge. Where do you buy Bitcoin etc.? How do you store them securely? And what about tax? That’s where crypto ETPs come into play – they make investing in digital assets as easy as buying stocks. In this article, we’ll explain everything you need to know about exchange-traded products in the crypto world.

What exactly is a crypto ETP?

Let’s start by shedding some light on the basics. ETP stands for exchange-traded product – a security that is traded on the stock exchange. Unlike traditional ETFs (exchange-traded funds), ETPs are debt instruments. That may sound complicated, but in essence, it means that an ETP mirrors the performance of a specific asset – in our case, one or more cryptocurrencies.

The big advantage is that you don’t need to deal with technical matters like wallets or private keys. Instead, you simply buy the ETP through your bank or broker – just like you would with a stock. Today’s ETP market offers a wide variety of options: from pure Bitcoin ETPs to Ethereum ETPs and baskets of multiple cryptocurrencies.

The difference between ETFs and other investment products

It’s important to understand how ETPs differ from other financial products. ETFs are structured as segregated funds – which means they’re protected if the issuer becomes insolvent. ETPs, as mentioned, are debt instruments. That may sound like a downside, but in the crypto space, it offers a crucial benefit: ETPs are more flexible and can be tailored to the specific characteristics of cryptocurrencies.

How do crypto ETPs work?

Here’s where it gets interesting: with physically backed crypto ETPs – which is exactly what we offer at nxtAssets – the corresponding amount of cryptocurrency is actually purchased and securely stored for every unit issued. So if you buy units in a Bitcoin ETP worth one bitcoin, one bitcoin is held in custody for you.

This sets us apart from synthetic ETPs, which only replicate performance using financial instruments. We deliberately choose physical backing because it’s more transparent and easier to understand. It also eliminates counterparty risk – the risk that a financial partner defaults.

The benefits of crypto ETPs

Why invest through a crypto ETP when you could just buy coins directly? Here are several good reasons:

1. Security:
Your crypto assets are stored in Germany by licensed custodians under the strictest security protocols and regulatory oversight. That’s a major advantage compared to direct ownership, where you’re responsible for safekeeping.

2. Simplicity:
No wallets, no complicated registration on crypto exchanges, no extra software. A regular securities account with your bank or online broker is enough.

3. Tax clarity:
Unlike direct crypto investments, where tax treatment is often unclear, ETPs follow well-established rules, making your tax return much simpler.

Other notable advantages include:

• Liquidity: ETPs are traded continuously on regulated exchanges for quick entry and exit.
• Transparent pricing: prices are set on regulated exchanges.
• Regulated trading: you benefit from all the protections of a regulated market.
• Flexibility: invest even small amounts.
• Integration: ETPs fit seamlessly into your existing portfolio.

Risks to consider

Naturally, we don’t want to ignore the risks. Crypto markets remain highly volatile – and that volatility is reflected in ETP prices. If you invest today, the value may drop tomorrow. That’s the nature of this emerging asset class. Of course, there’s also the potential for high returns– you can’t have one without the other.

We focus exclusively on established cryptocurrencies such as Bitcoin and Ethereum because we consider the risk of total loss to be extremely low.

Understanding cost structures

Costs are also an important factor. Crypto ETPs are typically more expensive than traditional equity ETFs due to the additional expense of secure custody and more complex infrastructure. At nxtAssets, we continuously work to optimise our processes and keep costs as low as possible.

Typical cost components include:

• a management fee: an annual base fee for managing the ETP
• a custody fee: costs for the secure storage of cryptocurrencies
• trading costs: spreads and brokerage fees charged by your broker when buying or selling our ETPs

How secure are crypto ETPs?

This is one of the most frequent – and most justified – questions we receive. At nxtAssets, we take a multi-layered approach to security:

Technical security:
Cryptocurrencies are stored in cold wallets – systems completely disconnected from the internet, making them virtually hack-proof. Access requires multi-level security protocols and approvals.

Regulatory security:
ETPs are traded on regulated exchanges and subject to strict oversight. As the issuer, we must meet transparency requirements and are regularly audited by regulators.

Organisational security:
We work only with trusted partners who have years of experience in the financial sector. Our internal processes are audited regularly by independent professionals.

The market at a glance

The market for crypto ETPs has grown significantly in recent years. Several providers have entered the space, increasing competition and ultimately benefiting investors.

What makes nxtAssets stand out? We’re fully committed to security made in Germany. Custody is 100% based in Germany, in compliance with the highest security standards and legal regulations.

Getting started: how to invest in crypto ETPs

Getting started couldn’t be easier. All you need is a brokerage account with a bank or online broker. You can buy and sell ETPs just like any other stock through your usual trading platform.

Unlike direct crypto trading, which is available 24/7, ETPs are subject to exchange hours – but that can be a good thing: prices tend to be more stable and less vulnerable to overnight swings.

Tax aspects

A major advantage of crypto ETPs is their clear tax treatment. Unlike direct crypto investments, where tax rules are often uncertain, ETPs follow standard securities taxation:

• Profits are subject to German capital gains tax
• The bank automatically withholds taxes
• Losses can be offset against other capital gains
• No ambiguity around holding periods: after one year, gains on ETPs are tax-free

Who should consider crypto ETPs?

From our daily work, we see several types of investors who particularly benefit from crypto ETPs:

Security-focused investors who want exposure to crypto but value regulation and professional custody.

Convenience-seeking investors who don’t have the time or interest to manage wallets, private keys or crypto exchanges. They appreciate the ability to invest in crypto just like they would with stocks.

Portfolio diversifiers looking to integrate crypto as a new asset class into their existing strategy. ETPs fit easily into traditional portfolios and offer standard reporting and tax handling.

And not to forget: institutional investors such as asset managers, family offices and smaller banks. For many of them, regulated products such as ETPs are the only way to access cryptocurrencies due to internal investment guidelines.

Of course, nothing replaces your own research and thoughtful consideration of personal goals and risk tolerance. But if you’re interested in crypto and value professional custody and regulatory safeguards, a crypto ETP might be the right choice.

By the way, if you still have questions – our team is happy to assist you. We’ll help you find the right product and support you on your journey into crypto investing.