Stock Alert: AT LAST! A cheap and easy way for UK investors to access the crypto world…
9th December 2021 |
The global crypto revolution is unstoppable.
This is because cryptocurrencies are at the heart of decentralised finance (DeFi), which is encroaching on the traditional finance (TradFi) system.
Examples are numerous and include payments infrastructure, brokerages, “savings” applications, lending and borrowing, and governments legally defining bitcoin as legal tender (as El Salvador has done).
However, it would be incorrect to suggest the rise of DeFi is always at the expense of TradFi. Rather, it is sometimes because the barriers between the two are falling.
For instance, exchange-traded funds (ETFs), which are very much creatures of the TradFi world, are now providing access to crypto.
We’ve already seen the arrival of the first bitcoin futures ETF on the US markets, called the ProShares Bitcoin Strategy ETF, in October 2021. This was after the world’s first bitcoin ETF launched in Canada, back in March, but the poor old Canadian market never really gets the credit that it deserves.
Of course, when a bitcoin ETF hits the US markets, it’s a big deal.
More bitcoin and crypto ETFs will follow. Some will be direct exposure to “spot” crypto, and some will be derivative products. Many will be companies, listed on stock exchanges around the world, with a crypto- and blockchain-specific focus.
What this all means is the continued, successful integration of crypto with TradFi systems, which will go a long way in boosting confidence in this new system of money amongst potential users who are seeking to venture into this world.
And the amazing thing is that despite all of the furor and excitement around crypto, it’s still early days and there are plenty of ways in which to get involved.
Some people will invest directly in crypto.
There will be some who invest indirectly through companies that are domiciled overseas, like Coinbase (NASDAQ: COIN). And, if and where available, some will invest in ETFs that give exposure to a variety of crypto opportunities.
This is all fine and dandy, but – for now – there’s a bit of a problem if you’re an investor in the UK that wants to add crypto-centric positions to your long-term portfolio.
There are not a lot of options…
The UK roadblocks
One problem is that the few crypto-focused companies that are listed on the London Stock Exchange (LSE) are high-risk businesses.
Also, in 2020, the Financial Conduct Authority (FCA) banned the sale of all crypto-derivative products to UK retail consumers. The FCA said:
… the FCA has made rules banning the sale, marketing and distribution to all retail consumers of any derivatives (ie contract for difference – CFDs, options and futures) and ETNs that reference unregulated transferable crypto assets by firms acting in, or from, the UK.
This put the brakes on any kind of crypto-related product that had been available to investors who were accessing markets through vehicles like SIPPs and ISAs.
The FCA’s ruling stunted and still prohibits growth in the UK for a sector where there is clearly appetite from investors.
Therefore, for most UK investors, getting crypto exposure in investment accounts means investing overseas. Canada and the United States are the two major markets for these companies.
But there are others that are much harder to invest in for the average investor like China, Japan and Hong Kong.
Investing overseas can be problematic and for many, quite scary. Foreign exchange rate fluctuations can erode gains and there are extra costs that come with currency conversions.
In addition, bureaucracy and regulations within different jurisdictions can make the investing process arduous and complicated. For instance, do you know what a W8-BEN form is? This is the document you need to sign and understand before investing directly into US markets.
We can tell you, even as seasoned investors, it’s a daunting form that would terrify us if we were new to all this.
In addition, to get a good, diversified exposure to everything from crypto miners to exchanges, infrastructure providers, companies holding bitcoin direct on their balance sheets, you’d need to hold at least a half dozen or more stocks. That means a larger capital outlay, and more transaction costs…
Phew! It’s all just a bit too much.
If you want to invest in a huge future investment idea like the crypto revolution, for the last few years there has not been an easy way for anyone in the UK to invest in a wide selection of these investments, easily, cheaply and right here in the UK market…
Until now…
Introducing your new Frontier Tech Investor recommendation…
There’s now a perfect solution to invest in the bigger crypto and blockchain investment theme, quickly and easily, right here, listed on the London Stock Exchange (LSE).
It is a way for UK investors to get exposure to the globally listed (predominately US) crypto companies that are reshaping our world, and helping to integrate TradFi and the crypto world riding its explosive growth potential.
The HANetf ETC Group Digital Assets and Blockchain Equity UCITS ETF (LSE: KOIP) is your next Frontier Tech Investor recommendation.
(For the sake of brevity, we’ll refer to it as just KOIP from now on.)
Now, we know that looks a mouthful, and isn’t a single, direct stock like one of our usual recommendations, so allow us to explain.
Smashing through the roadblock
An ETF is an investment fund that invests in a basket of stocks or assets. Most ETFs track a specific index; for example, the S&P 500, or a basket of stocks that are related to a particular theme or concept.
ETFs provide diversified exposure across a range of securities, which can (but not always) mitigate risk.
A hallmark of an ETF includes low transaction fees; the only real cost is a one-off brokerage commission, similar to stock trades. In fact, it’s just like buying any single stock through your preferred broker.
Relative to most of the alternatives, it is a cheaper way to invest in a particular sector or investment theme or idea.
Another advantage is strong liquidity, because ETFs are usually traded on major and well-regulated stock exchanges where they can be easily bought and sold.
ETFs provide investors with the opportunity to invest in a thematic investment idea, without having to deal with the complexities of a portfolio mix and rebalancing, reweighting and dealing with the costs involved of multiple stocks across multiple jurisdictions.
KOIP is no different, and provides a new, exciting type of exposure to the overseas crypto markets, while being listed on the LSE.
A bit about KOIP
As to what the fund invests in, well it’s very simple. It provides exposure to companies in the digital assets and blockchain space. This includes cryptocurrency mining, blockchain technology and cryptocurrency exchanges.
And in doing so, it aims to track the price and yield performance of the Solactive ETC Group Digital Assets and Blockchain Equity index, which is comprised of 30 blockchain-related stocks.
KOIP first launched on the LSE on 14 November 2021.
Note: KOIP is the GBP denominated version of the HANetf ETC Group Digital Assets and Blockchain Equity ETF. There is another version with the ticker, (LSE:KOIN), which you will see referenced in the prospectus and information. The KOIN version is denominated in USD. You can invest in either. But for simplicity for investors here in the UK market, we are recommending the KOIP GBP version.
It was created following a partnership between HANetf and ETC Group.
HANetf is an independent ETF provider that brings a variety of modern and innovative ETF exposures to investors.
In fact, we first found out about the ETF after meeting one of its founders, Hector McNeil, at a cannabis investment conference in London, mid-November. This was just days before the ETF was launched on the LSE.
When he explained what the ETF was doing, it was the perfect fit for our views on the crypto revolution, but also something that delivered exposure to the big US opportunities while being listed on the LSE.
As stated, the KOIP ETF invests in an index comprised of crypto miners, exchanges and blockchain-centric stocks. You can view the top ten holdings and weightings of the companies in the ETF here.
The index of its stocks is adjusted on a quarterly basis, with weighting consideration given to whether the company is a “pure play” stock or non-pure play stock.
In this context, pure play refers to a company that generates a significant portion of its revenues from the blockchain industry. If there aren’t 30 pure-play stocks in the space, the spaces are filled by non-pure play stocks until 30 companies are reached.
That means going forward as new crypto-centric stocks hit the markets, we may very well find new stocks enter the holdings that are more of a pure play, replacing some of the existing holdings.
That also means over time we expect the ETF to be even more homed in on the big, crypto-focused pure-plays on global markets. The ETF will evolve and grow in our view just as the global crypto market will too.
While this is an ETF, by no means expect that it’s going to have “index-style” stable returns. Yes, it’s a diversified portfolio that tracks an index. But within the thematic idea of crypto and blockchain stocks, we’re still talking about a highly volatile industry that moves still very much in line with direct crypto values and performance.
We expect this will be volatile, but with a long view on the crypto-focused investment idea, we believe that the KOIP ETF makes investing in this idea, easy, simple and importantly accessible to UK investors that want to invest in this space, but haven’t really known where to start until now.
Risks and action to take
Investing in the KOIP ETF does still have risk.
The success of KOIP is dependent on the success of the crypto- and blockchain-centric stocks that make up its holdings.
Of course, these stocks are reliant on the wider crypto ecosystem. For example, KOIP’s underlying index has a 0.7 correlation to bitcoin. That means that it’s tightly linked to bitcoin’s performance.
For example, when bitcoin’s price moves up, the index has a high chance of moving up too, and if bitcoin were to crash lower, well the ETF has a pretty good chance of heading south too.
As such, any major downturn in the crypto market could impact the stocks, and drive the KOIP ETF lower.
Therefore, many of the risks that come with the direct crypto market are applicable here too.
We’ve already seen governments around the world clamp down on crypto. In particular, Chinese regulators announced a ban on crypto mining and transactions in the country in September 2021.
In fact, seven companies in the ETF are based in China, making up 8.88% of the total. This of course brings an element of risk to the KOIP ETF when considering the news flow from China.
Finally, blockchain technologies are still at a nascent stage in their deployment. As such, it is relatively unproven, and may not take off in line with expectations.
Nevertheless, we believe KOIP provides a fantastic opportunity to become involved in the crypto market.
It provides seamless access to a range of exciting and potentially lucrative digital assets who have a key part to play in the growing crypto trend.
Buying instructions
KOIP is available to buy through, traditional stockbrokers. If your broker isn’t currently showing it on their application or online, contact them as this is a liquid, LSE-listed ETF, so there shouldn’t be any problems investing in it.
HANetf has a great guide on investing in ETFs and a list of platforms here.
Buying KOIP is just as easy and straightforward as buying any LSE listed stock.
Action to take: buy the HANetf ETC Group Digital Assets and Blockchain Equity UCITS ETF (LSE: KOIP), current price 453.42 GBp. Buy up to 595 GBp.
Ticker: KOIP (LSE)
Price as of 09/12/2021: 453.42 GBp
52-week high/low: 474.90 GBp/448 GBp
Buy up to: 595GBp
Sam Volkering
Editor, Frontier Tech Investor
Elliott Playle
Junior Analyst, Frontier Tech Investor
