What is a crypto ETN?
Summary
A crypto ETN is an exchange traded note: a listed debt security whose value follows a crypto-asset. The holder owns the security and its contractual claim, not coins in a wallet. Collateral may support that claim, but it does not make the note a fund.
- ETN describes a debt security; ETF describes a fund; ETP is the wider exchange traded category.
- Physical backing holds crypto assets as collateral; other ETNs can have different collateral arrangements or none.
- The investor owns the note, whose price can differ from the underlying crypto because of fees and trading costs.
A crypto ETN is a debt security
ETN stands for exchange traded note. A crypto ETN is a listed debt security whose value follows a crypto-asset or an index. A bitcoin ETN, for example, gives the investor bitcoin price exposure through a security in a broker account. The investor does not receive bitcoin in a wallet. Nasdaq describes ETNs as debt notes1 on its Nordic markets.
An ETN is one type of exchange traded product (ETP). An ETF is another type, but it is a fund. Some markets and brokers use certificate as a label for an exchange traded security. That label alone does not establish its legal form; the product terms show whether it is a note and what claim the holder has. The ETP explainer sets out the broader category.
ETN, ETF and ETP
ETN, ETF and ETP describe different things
| Term | What it means | What the investor owns |
|---|---|---|
| ETP | The wider exchange traded category | Depends on the product's legal form |
| ETF | A fund traded on an exchange | Units in a fund |
| ETN | A debt security traded on an exchange | A claim against the issuer, which may be supported by collateral |
An ETN is still a note even when it trades alongside ETFs at a broker. A fund investor owns fund units; a note investor has a claim against the issuer. The UCITS fund rules2 apply to funds, while securities offering rules3 cover the disclosure for notes.
What backs a crypto ETN?
An ETN may be collateralized or uncollateralized4. An unsecured note relies on the issuer's ability to meet its obligations without specific assets backing the claim. Virtune's physically backed crypto ETPs hold crypto assets as collateral5 with a custodian for the securities. The investor still owns the note, not those crypto assets. The collateral is relevant if the issuer cannot meet its obligations.
What backs a particular note is set out in its product terms; the asset whose price it tracks does not answer that question. Physical backing does not turn a note into a fund.
Price tracking and trading
The note's value is linked to its underlying crypto-asset or index. A management fee reduces its value over time; the price paid on an exchange can also differ because of the bid-ask spread and trading hours. Two notes linked to bitcoin can therefore give different outcomes even when bitcoin's price move is the same.
Risks of a crypto ETN
The crypto-asset's price can fall, and the collateral may lose value with it. Its price can also move while the ETN's listing exchange is closed, changing the next available quote. The note depends on the issuer and, where it is backed, on the collateral and custodian. The crypto ETP buying guide explains the practical purchase steps.
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Sources
- Nasdaq: ETN/ETC on Nasdaq Nordic
- Official Journal of the European Union: Directive 2009/65/EC (UCITS)
- Official Journal of the European Union: Regulation (EU) 2017/1129 (Prospectus Regulation)
- Deutsche Börse: About ETF, ETN, ETC and ETP
- Virtune Investor Relations: Collateralization Methodology
