CoinShares Physical Top 10 Crypto Market ETP

Crypto index ETPs help investors achieve broad market exposure passively. Thanks to their dynamic allocation and automatic rebalancing, they ensure investors are always exposed to emerging trends in the crypto space in a diversified way. 

The CoinShares Physical Top 10 Crypto Market ETP (Ticker: CTEN) replicates the performance of the CoinShares-Compass Top 10 Crypto Market Index, which groups together the 10 biggest crypto by market capitalization (excluding private coins and stablecoins). This article will explore the structure of the underlying index and the advantages of CoinShares’ new ETP. 

The index was designed by CoinShares’ product team together with Compass Financial Technologies. Compass is a pioneer in index developments over multiple asset classes, including commodities and digital assets. Since 2017, it has created indexes which are currently used by some of the world’s largest  financial institutions (Citi, MSCI, J.P.Morgan, Amundi, SocGen, Euronext).

The CoinShares-Compass Top 10 Crypto Market Index is constituted of the 10 largest digital assets, including both blue-chip coins (BTC, ETH) and altcoins. 

Note: for illustrative purposes only. Data as of 27/03/2023

This number was chosen based on several factors:

• Market representation. The index needs to reflect the state of the market as accurately as possible. Using just 10 coins, the index effectively captures around 80% of the total crypto market. Using less than 10 coins would lead to less accurately capturing the trends of the market.

• Transaction cost. More coins could lead to a more diversified portfolio and higher (although marginal) market representation, limiting concentration risk in the process… but generating higher transaction costs. 

• Distribution restriction. The number of eligible coins is limited on most traditional security exchanges, which in turn limits the number of coins eligible for inclusion in the index.

Note that should the number of eligible coins fall to below 10, the index could include less than 10 constituents. 

Coins enter the index following several criteria:

• The coins must not be a stablecoin, a privacy coin, or a “meme” coin. The index doesn’t intend to be exposed to stablecoins, coins whose rules and protocols hide or obscure transactions on its blockchain, and coins regarded as a ”meme coin”.

• Eligibility on exchanges. As CoinShares planned to list the ETP replicating the index on Xetra, Germany's main market, the index only integrates coins that can be traded on this exchange.

• Trading and liquidity requirements. The coin must have a liquid trading market on at least one reputable digital asset exchange. The index committee analyses several metrics to assess liquidity, with no systematic threshold due to the dynamic nature of liquidity assessment. Should the assets in the index be illiquid, they would be harder to track and trade, negatively impacting the index’s ability to reflect the market efficiently.    

• BMR compliant. The BMR is the European Union’s Benchmarks Regulation, which gives a regulatory framework for indexes used in financial products. All coins included in the index are compliant with BMR. For example, while they meet the previous criteria, tokens such as BNB and FTT are considered by the Index Provider as too centralised to meet BMR’s eligibility criteria and thus have been excluded from the index. 

• Market capitalization. The index aims to represent the coins with the largest market capitalization which also respect the above criteria. 

   

The index imposes a weighting capped at 35% per coin - even if a specific crypto captures a bigger market share, its weight within the index will never exceed 35%. The excess will then be allocated pro-rata to other coins. Most competing ETPs do not do this, and simply replicate market weighting. 

We think a 35% cap is important in order to:

• Reduce concentration risk. This is very relevant for crypto as Bitcoin has a strong predominance. 

• Achieve greater diversification. The 35% limit leaves more space for altcoins, thus increasing diversification. Over the long run, this may benefit the risk-adjusted performance.  

   

The index is rebalanced every quarter. This frequency allows the index to stay up to date with market changes while controlling trading costs - which could rise if rebalancing was more frequent.

CoinShares Physical Top 10 Crypto Market ETP provides a passive exposure to the wider crypto market in a diversified, regulated, transparent and cost-efficient manner. As it reproduces the CoinShares-Compass Top 10 Crypto Market Index, it also inherits its design: 10 constituents, with a 35% cap, quarterly rebalanced. 

The ETP physically replicates the CoinShares-Compass index - it buys and holds the coins included in the index in the same proportions. The assets are then held by Komainu, a specialised digital asset custodian regulated by the Jersey Financial Services Commission (JFSC). 

This method of replication ensures that the ETP accurately reflects the value of the underlying index. It also provides institutional-grade security. For more information on Physical ETPs and their structure, you can refer to What are Physical ETPs.

To replicate the index operation, the ETP is rebalanced quarterly by CSCM (CoinShares Capital Market (Jersey) Limited), acting as the Determination Agent of the Product. There is no action required from investors, making investing in the ETP a good option for passive exposure.    

CoinShares is the first - and so far only - ETP issuer offering such a rate.

How are we able to offer this? CoinShares may stake some of the coins composing the index whenever applicable to generate revenues.

We created this ETP with two investor profiles in mind: 

• First-time crypto ETP buyers. The ETP offers passive, convenient and cost-effective exposure to the wider crypto market. You don’t have to spend time researching the best crypto in which to invest, and its physically-backed structure frees you from the constraints and risks of self-custody. 

• Current single-asset ETP investors. The ETP can be an interesting addition to your portfolio thanks to its lower management fee and higher exposure to the broader market. 

   

This ETP is listed on Xetra, Germany’s leading exchange. You can buy it through your usual broker.

Once you have logged into your online broker’s account or app, only 3 steps are required:

1. Search for the product name (CoinShares Physical Top 10 Crypto Market ETP), ISIN code (JE00BPRDNL86) or ticker (CTEN).

2. Choose the notional amount or number of securities you wish to buy.

3. Place the execution order. 

   
   You can then easily monitor the ETP’s performance in your portfolio. 

CoinShares Physical Top 10 Crypto Market ETP replicates an expert-designed index that groups the 10 largest crypto by market capitalization, while ensuring diversity through a 35% cap and automatic rebalancing. It’s a great fit for investors looking to be passively exposed to crypto in a transparent, cost-efficient, and regulated manner. 

Head over to the Product Page for more details on the ETP.