TP ICAP To Extend Trades on Crypto Equity Instruments to US ETFs

TP ICAP’s digital assets business aims to extend its trades on crypto asset equity instruments to US exchange-traded funds after completing the first trade of this type with Goldman Sachs this month.

The interdealer broker and market infrastructure provider’s digital assets business traded German-listed BTCetc, ETC Group’s Physical Bitcoin exchange-traded crypto product, on an outright basis against CME Group’s Bitcoin future in the form of an EFP (exchange for physical). Crypto ETP market makers DRW, Flow Traders and Jane Street provided liquidity.

Max Minton, APAC head of digital assets at Goldman Sachs, said in a statement: “Institutional demand continues to grow significantly in this area and this partnership will help us expand our capabilities to serve our clients.”

Simon Forster, co-head of digital assets at TP ICAP, told Markets Media that ETPs and futures are very well understood by the firm, whether they reference bitcoin, gold, another asset or an index.

“Since the start of the digital asset business we have focused on providing our clients with access to the crypto market through familiar products and with familiar providers,” he added. “They are the building blocks of a healthy liquid ecosystem that we see in other asset classes at TP ICAP which is why it is so encouraging to see these products being packaged together.”

Simon Forster, TP ICAP

He continued that the trade and the profile of firms involved speaks to the increased institutional interest in crypto and maturation of the asset class.

TP ICAP is based in the UK but also has a footprint in the US and in Asia. Forster said the firm wants to offer the same product range in all three regions.

“US crypto ETFs are undoubtedly going to grow so it’s really important that we serve clients on these products on the ground in the US,” Forster added.

The US Securities and Exchange Commission has approved ETFs on bitcoin futures but not on spot bitcoin ETFs. TP ICAP found there was a meaningful increase in the volumes of CME bitcoin futures following the SEC approvals of the first US bitcoin futures-based ETFs in October 2021.

Forster expects the next focal point of the crypto market to be over-the-counter derivatives such as non- deliverable forwards, OTC options and total return swaps which are very important in other asset classes handled by TP ICAP.

“We are doing a lot of work internally around these products to ensure we can satisfy our regulatory obligations such as reporting,” he added. “We are really focused on doing what we can in our role as an intermediary to help put that framework in place for clients.”

By the end of this year Forster said the digital assets business would like to be trading listed derivatives, equity instruments and OTC derivatives in all three regions and to have successfully launched a wholesale platform for trading spot crypto.

In June 2021 TP ICAP announced it intended to launch a wholesale  electronic marketplace for spot crypto asset trading. The launch is subject to registration with the UK Financial Conduct Authority, which is still pending, under money laundering, terrorist financing and transfer of funds regulations. Fidelity Digital Assets and Zodia Custody will provide digital asset custody to ensure clients have a segregated and interoperable model for execution and settlement.

Forster said: “We expect to announce more custodians that will be supporting our network and we would also like to make progress around some of the tokenization initiatives where we are playing a role.”

Duncan Trenholme, TP ICAP

Duncan Trenholme, co-head of digital assets at TP ICAP, told Markets Media that in the spot crypto market the firm’s clients would like assets to stay at the custodian and to use a familiar execution firm. He also expects tokenization to grow.

“Investment banks are looking to put credit instruments onto ethereum, central bank digital currencies are being talked about, and there are high profile precious metals projects from investment banks,” he added.

ETC Group

Forster said clients wanted to use ETC Group’s BTCE fund as a proxy for bitcoin as it is the most liquid crypto ETP on a regulated exchange in Europe.

BTCE was the first crypto ETP approved by the German regulator and the world’s first centrally cleared crypto exchange-traded product when it listed on Deutsche Börse Xetra in June 2020 according to ETC Group. The fund also became the underlying product of Europe’s first crypto futures contracts on the German exchange’s derivatives venue.

ETC Group said BTCE had an order book turnover of over $8bn in the first 11 months of last year and was Xetra’s most traded bitcoin exchange-traded product to date. BTCE was also the second most traded product within the whole ETF and ETP segment on Deutsche Börse as its assets grew from $89m in October 2020 to over $1.7bn in November 2021.

Bradley Duke, ETC Group

Bradley Duke, chief executive of ETC Group, an issuer of institutional-grade digital asset-backed securities, told Markets Media that TP ICAP’s trade shows a certain level of maturity of crypto markets.

“Large institutional players like TP ICAP coming in and facilitating trades of this nature means a level of sophistication has developed around a new asset class,” Duke added. “It’s an interesting crossover of the old world and the new.”

He continued that BTCE is increasingly being seen as a proxy for bitcoin in a regulated instrument because the tracking error is small, spreads are tight and it is very liquid. Duke expects 2022 to continue the trend of increasing institutional involvement in crypto markets, especially as bitcoin is seen as an inflation hedge alongside gold.

“In 2021 the cryptocurrency market cap went from under $1 trillion to over $3 trillion in market cap,” he added. “At the beginning of 2021 Bitcoin was 70% of total market cap and it is now 40%. Bitcoin hasn’t lost any of its sparkle but there have been so many new coins.”

In December 2021 ETC Group announced the listing of five new exchange-traded cryptocurrencies on Deutsche Börse – Polkadot, Solana, Stellar, Tezos and Cardano.

“This year there will be more focus on yield and there are some good products out there which involve staking,” he added. “This involves an adjustment in the risk profile so there should be a reflection in the rewards being offered.”

Staking allows crypto owners to earn rewards for holding certain currencies through a staking pool. Cryptocurrencies that allow staking use a consensus mechanism to ensure that all transactions are verified and secured on the blockchain and staking allows an investor’s holding to become part of that process. 

Duke said ETC Group also expects to launch more UCITS ETFs, based on indices or that are yield-related. In November 2021 ETG Group, together with HANetf, launched its first thematic ETF, a Digital Assets & Blockchain Equity UCITS ETF on London Stock Exchange – the KOIN ETF.

Hector McNeil, co-founder and co-chief executive of HANetf, said in a statement: “Investors are increasingly looking for alternative ways to access both underlying crypto markets and the blockchain technology underpinning this high growth industry, and they can do this both through ETC products such as BTCE and now through KOIN ETF. This is similar to the way investors access gold through both investing in the commodity directly and also through gold mining companies or gold miner ETFs.”