Crypto ETPs and security – risks, safeguards and regulatory frameworks

The world of cryptocurrencies is fascinating – and sometimes a little wild. That’s exactly why we exist. At nxtAssets, our mission is to provide investors with a secure and regulated way to access crypto investments. Today, we’d like to give you an in-depth look at the security aspects of crypto ETPs – a behind-the-scenes view of how we work.

Crypto ETPs vs. traditional ETPs – the key differences

Let’s start with the basics. Many of you are already familiar with exchange-traded products (ETPs) from traditional equity ETFs or commodity ETPs. Crypto ETPs work in much the same way – except that instead of stocks, the underlying assets are Bitcoin, Ethereum etc.

The big advantage is that you can invest in cryptocurrencies without having to manage wallets or private keys yourself.

So where’s the difference compared to traditional ETPs? Think of a physically backed gold ETP – the gold sits safely in a vault. With cryptocurrencies, it’s a bit different. These are digital assets and require completely different security measures. It’s technically more complex. But don’t worry, we’ve built solutions that are just as secure as a vault.

Another key difference is pricing. While traditional ETPs are based on highly liquid markets with decades of history, crypto markets are still young and can be quite volatile at times. This makes risk management particularly challenging – but we’ll get to that.

Security first

At nxtAssets, we take security seriously. Our cryptocurrencies are stored in what’s known as cold wallets – special digital vaults completely disconnected from the internet. Think of them as high-security safes inside a bunker. Custody takes place exclusively in Germany, in compliance with BaFin regulations and under the highest security standards.

We work with renowned partners specialised in digital asset custody. These custodians are subject to strict regulatory requirements and are regularly audited by independent authorities. Additionally, our assets are insured – an extra layer of protection for your investment.

The technical side: how does security work in detail?

For us, security means one thing above all: The physical cryptocurrencies that we acquire 1:1 when investors buy our ETPs are stored under the strictest security conditions.

We use a BaFin-licensed custody solution that combines two core security concepts:

• Segregated wallets – each of our ETPs gets its own “digital locker”
• Cold storage – the private keys are never connected to the internet

This set-up offers the highest level of protection. Each transaction must be approved by multiple independent control authorities and authorised personnel.

Transparency builds trust

Transparency isn’t just a buzzword for us. We ensure that our investors always know exactly what’s happening with their investment. Regular audits by independent auditors are standard practice. And we publish the results – because those with nothing to hide can truly earn trust.

We also communicate actively with our investors. Through regular reports, we provide updates on product performance, market developments and all relevant security aspects. If any technical issue arises – which can happen with complex systems – we’ll inform you promptly and honestly.

The role of financial supervision

One of the things that sets us apart from many other crypto providers is that we operate under the supervision of BaFin, Germany’s financial regulatory authority. This means we have to comply with strict regulatory standards – which is good. It protects our investors and ensures a clear framework for serious providers.

The regulations cover areas such as:

• Strict capital requirements
• Regular reporting obligations
• Clear risk management standards
• Rigorous IT security protocols
• Independent financial audits

German regulation often exceeds international standards, making Germany one of the safest locations for crypto investments worldwide.

Understanding and managing risks

Of course – and let’s be very clear – crypto ETPs do carry risks. Market volatility is the most obvious one. When Bitcoin prices swing, so does our ETP. That’s part of the crypto DNA and can’t be wished away.

What we can do is minimise the technical and operational risks. Our IT systems are continuously updated and tested by security experts. We protect against cyberattacks through layered security mechanisms.

We also pay close attention to counterparty risk. Unlike direct crypto investments, ETPs always involve issuer risk. We mitigate this risk by:

• Strict separation of customer assets from company assets
• Physical backing of all cryptocurrencies
• Regular independent verification of coverage
• Additional insurance coverage

Focus on liquidity

Another key factor is liquidity. As an investor, you want to know that you can sell your ETPs when needed. That’s why we work with several market makers who continuously provide bid and ask prices – even when markets are volatile.

Liquidity management is no small task. Crypto markets run 24/7. Our market makers monitor prices across exchanges in real time and adjust their quotes accordingly. We’ve built special systems to ensure fair and efficient pricing at all times.

The future of crypto ETPs

The crypto market is constantly evolving – and so are we. Our experts continuously monitor emerging trends and technologies. Still, we always follow one guiding principle: security over speed. We only launch new features or products once we’re confident they meet our high security standards.

One exciting trend is the growing interest from institutional investors. More and more professional investors – such as funds and asset managers – are discovering crypto ETPs as a serious way to access digital assets. This is likely to bring new liquidity into the market over the coming years and could support long-term price development.

Conclusion: security as the foundation

Crypto ETPs are a compelling investment vehicle, combining the benefits of the crypto world with the security of regulated financial products. At nxtAssets, we’re committed to giving you the best possible protection for your investment. We don’t just rely on technical solutions but create a robust security system through regulation, transparency and trusted partnerships.

Of course, we can’t eliminate volatility. But what we can do is minimise the technical complexities and make everything as transparent as possible – so you can make informed decisions.

Thanks to Germany’s strong regulatory environment, top-tier custody solutions and transparent operations, crypto ETPs offer an attractive option for those who want to invest in crypto – without having to manage all the technical details themselves.

And that’s exactly our mission at nxtAssets:
We make crypto investments secure, transparent and accessible – so you can focus on what really matters: your investment decisions.

The future of crypto is exciting – and sometimes a bit unpredictable. But one thing is certain:
At nxtAssets, we’ll continue doing everything we can to give you the most secure and professional access to this fascinating asset class.