Long used by professional and institutional investors, ETFs are now popular among individuals. This week, we had the pleasure of talking about it with Cyril Sabbagh, of the independent management company Melanion Capital. The opportunity to look back on the launch of the very first UCITS ETF in the world on the Bitcoin theme.
Last October, Melanion Capital (approved by the Autorité des marchés financiers) launched the very first UCITS ETF in the world on the Bitcoin theme. Before getting to the heart of the matter, what can you tell us about how an ETF works?
ETF stands for “Exchange Traded Fund”. It is a financial instrument, listed on the stock exchange and which is intended to replicate as closely as possible the upward and downward variations of an index. In Europe, ETFs comply with the European UCITS or UCITS directive in French.
Unlike a conventional UCITS, ETFs can be traded continuously on stock exchanges like shares. The liquidity of ETFs is provided by Market Makers (liquidity providers). In addition to continuous listing, the ETF has the advantage of having a lower minimum subscription than a conventional UCITS.
Why fought so hard to be stamped “UCITS” (which, as a reminder, refers to a European directive aimed at harmonizing the financial markets)?
The UCITS standard (or UCITS in French) is the “Holy Grail” in Europe (but also on other continents, in particular in Asia and South America). In fact, for a fund to be offered to an institutional investor in Europe, the first condition is that it be UCITS. It is the most demanding and robust framework for all funds in Europe!
It is based on 5 main principles:
- Clear investment constraints
- Diversification ratios
- Strong risk management and investment limits
- Information transparency
- Use of an independent custodian
It is also the guarantee of eligibility in all the regulated envelopes offered to individual investors: such as the securities account, life insurance and even the retirement savings plan. This would not have been the case if we had launched a tracker!
So you understood, we wanted to offer as many people as possible exposure to the Bitcoin theme without regulatory constraints and in a secure setting!
The challenge was important because no actor had succeeded in launching such a fund before us. Our ETF is therefore the first UCITS ETF in the world on the Bitcoin theme (for information, none of the American Bitcoin ETFs are UCITS).
A few words about the methodology that allowed us to meet this challenge. It is unique: the ETF invests in a selection of 30 stocks from the crypto ecosystem listed on international regulated markets. These 30 stocks are chosen and weighted according to their sensitivity (Beta) compared to Bitcoin.
Are we to understand that this de facto limits cyber risks?
All the components of the index are shares listed on regulated markets (North American and European) and are therefore subject to the same constraints as all the other companies present on these markets. The ETF is similar to a thematic equity ETF, so buying it does not directly hold cryptocurrencies, which eliminates the risk of hacking, loss and theft of tokens that can occur on centralized and decentralized platforms (CEX & DEX).
Despite strong turbulence on the crypto-currency market (especially since the fall of Bitcoin over the past six months), are you still managing to detect interesting signals and respond to the distrust of certain investors?
It is important to take a step back from Bitcoin, which was born in 2009 and therefore not necessarily focus on a semester. Bitcoin has experienced very strong corrections on many occasions in its history ranging from -20% to -70%
Moreover, unlike other cryptoassets, it is not the fundamental principles of Bitcoin that have been questioned. This correction is not synonymous with rejection of this technology, but collateral damage due to several events both within and outside the crypto ecosystem: rate hikes, Terra LUNA saga, global economic uncertainties...
The price of Bitcoin cannot be predicted, but we advocate a long-term vision and we are convinced that its adoption will increase. And we are not the only ones: more and more institutional players are highlighting their interest in the crypto world and more generally in blockchain technology.
JP Morgan for example, through the voice of its strategists, indicated in late May replacing real estate with digital assets as the preferred alternative asset class along with hedge funds. Goldman Sachs would seek for its part to integrate some of its derivative products into the offer of FTX.US, the famous international Crypto Exchange.
We are witnessing a revolution in the same way as the Internet revolution in the early 2000s. Our ETF, which invests in companies in the crypto ecosystem, is precisely a means of investing in the players of this revolution!
Finally, I would like to remind you that our ETF has an SRRI risk of 7 and that the recommended minimum holding period is 5 years.
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