Jérôme Castille (CoinShares): "Our aim is to remove counterparty risk from investors".
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A pioneer in the sector, asset manager CoinShares offers one of the simplest and safest ways to gain exposure to bitcoin. Its Chief Compliance Officer Jérôme Castille explains the group's vision.
The end of 2023 is marked by the craze surrounding the forthcoming arrival of several Bitcoin ETFs in the United States, how can this be explained?
For one simple reason: Americans manage a large part of their savings with their securities account. It's the most popular instrument for investing and many operate solely on it. The day that Bitcoin ETFs appear on the US market, we can assume that a significant amount of liquidity will turn to these new products.
Why are these ETFs also capturing the attention of European investors?
Because there's the "ETF" terminology, the fact that it's new, and so on. You also have to bear in mind that the United States accounts for around 60% of global savings. Potentially, this could have a major impact on the price of bitcoin.
Will US ETFs be available in Europe?
Some European institutional investors will be able to buy them on their own account, but as far as retail investors are concerned only Americans will have access to them. In Europe, the only way to gain exposure to a similar product is to invest in ETCs, such as those offered by CoinShares. This is for regulatory reasons, as the way ETFs are structured in the US is not permitted in Europe. The same applies to gold: European retail investors cannot gain exposure to US ETFs tracking this asset. They go, for example, through Amundi's ETC.
What distinguishes your ETCs from US Bitcoin ETFs?
It's only the legal envelope containing the underlying asset that changes. When you hold a share in an ETF, the underlying asset is co-owned by all the holders. This differs from an ETC, which is a debt security. Here, the issuer undertakes to deliver the performance of the underlying asset that it holds on its side. In reality, these are very similar instruments, as neither allows investors to recover the underlying asset. They can only be exchanged for cash.
How do you judge the appetite in Europe and particularly in France for this type of product?
Europe is not homogenous. We are already very successful in the Nordic countries, Germany and Switzerland, where savers have a more developed investment culture. As far as France is concerned, we have only been established for two years. This is a market that is traditionally considered difficult for independent fund managers to access, because the infrastructures are often linked to banks and insurance companies. But we are convinced that the news surrounding US ETFs will enable us to raise awareness of our products. They are listed on Euronext Paris and are very easy to access.
Your challenge is above all acculturation?
Completely. Firstly in relation to assets as such (and bitcoin in particular). Then in relation to the financial instrument that allows exposure to it in a framework that everyone knows: the securities account.
Do you offer exposure to assets other than bitcoin?
We have around fifteen products, but the biggest ones focus on bitcoin and ether. We also have two new products, which are indices containing a basket of several digital assets. In mid-November, our total assets under management represented around $3.4 billion.
The question everyone is asking is counterparty risk. How are your assets protected?
There is no risk on our ETCs. The assets are held with an independent custodian (Komainu, editor's note).
What makes your product so secure?
If an investor wants to buy $50 million worth of a Bitcoin ETC, a market maker will go to the cash market to buy the corresponding number of bitcoins. These bitcoins will then be sent to the custodian, in this case Komainu, which will then have the deposit certified by an independent administrator. Only after the administrator has validated the deposit can new ETC shares be issued and sent to the investor's portfolio via Euronext. At no time does Coinshares touch bitcoin, which is not our business. We are only an issuer of securities. What's more, CoinShares is listed on the Stockholm Stock Exchange and all our accounts are public.
Why do you advise investors to use your products rather than hold digital assets directly?
What we offer has just one aim: to remove the counterparty risk from the investor. Those who want to hold their digital assets in self-custody can do so, but I'm not sure we'll be able to attract 30 million French people that way. And when you look at the crypto-asset exchange platforms that have been built on a huge network of counterparties, I find that we are going backwards on everything that has been built to protect investors over the past 20 years. I'm much more comfortable proposing that someone invest in an infrastructure they know with the simplicity of a securities account and where counterparty risk has all but disappeared.
What is the profile of the people who invest in your ETCs?
We don't have precise data because our products are intermediated, but our research has shown that it's mostly individual investors via neo-broker platforms. However, we are starting to see the arrival of new players who we imagine to be more institutional because the amounts are much larger.
Where can people buy your ETCs in France?
We are available on all specialist trading platforms, as well as brokers such as Saxo Bank or Degiro. We are also in discussion with other players in online banking. One of our objectives is to offer a savings-related perspective in order to remove the psychological barriers to digital assets.