Brazil assumes global leadership with digital asset ETFs

Charlie Taylor

Brazil is known for having one of the most robust and efficient banking systems in the world. Our capital market is also an international benchmark in technology, safety and regulatory quality. Now, the country appears as a new benchmark for world markets. This time, we are the storehouse of the greatest diversity of digital asset ETFs for investments in the cryptocurrency universe, which has attracted more and more investors and revolutionized the global circulation of assets and investments around the globe. ETFs (Exchange Traded Funds) are funds traded in quotas, which reproduce the behavior of a set of assets or an index, such as the Ibovespa, for example. They have attracted many investors because of their simple concept and application. A positive point of ETFs is the fact that they are traded in a regulated exchange environment, in the case of Brazil, on the B3, even if, in the case of digital currencies, they are an asset class not yet regulated. And this in practice means being within an environment with supervised rules and consequently more friendly to investors accustomed to traditional assets or those who want to expose themselves to digital assets within this environment. In the world, to date, only Brazil, Canada and recently Australia have publicly traded digital asset ETFs. In the United States, the SEC does not yet allow listing. The alternative found were products with exposure to Bitcoin derivative contracts traded on the Chicago Futures Exchange. Australia only authorized the creation of these products in May of this year, when the Australian exchange began trading three digital asset ETFs. In Brazil, we have 10 ETFs listed while Canada has already surpassed that number, but there is relevant information in the comparison. In Canada, all ETFs basically reproduce the behavior of Bitcoin and Ether, and in Brazil, the diversity is much greater: there are more than 35 digital assets accessible indirectly. The Investo Metaverse ETF (NFTS11), for example, is referenced by the MVIS CryptoCompare Media & Entertainment Leaders, which allows exposure to eight assets related to games, metaverse and the newly created ApeCoin. Another example is the QR Capital DeFi ETF (QDFI11), the fund is based on the Bloomberg Galaxy DeFi Index. The acronym DeFi in English refers to the Decentralized Finance segment, which encompasses a series of applications and protocols that aim to replicate existing financial services through blockchain and without the need for intermediaries. This ETF allows exposure to 11 assets, the main ones being Uniswap, Aave and Maker DAO. The Hashdex DeFI ETF (DEFI11) also tracks the performance of the DeFi market and is based on the CF DeFi Composite Index – Modified Market Cap Weight. The fund has 12 assets in its composition, the main ones being Ether, Uniswap and Curve. There is also the Hashdex WEB3.0 ETF (WEB311). The fund is based on the CF Smart Contract Platforms Index and provides investor exposure to the growth of the Smart Contract Platforms ecosystem. Smart Contracts use blockchain technology, allowing agreements to take place without intermediation from any institution. Your wallet has a total of seven digital assets. Among the best known, Ether, Cardano and Solana. The most recent of all digital asset ETFs is the Empiricus Teva Criptomoedas TOP20 (CRPT11), launched in May 2022. The ETF is referenced by the Teva Criptomoedas Top20 index, which reflects the performance of 20 cryptocurrencies, with the highest concentration in Bitcoin. (BTC) and Ether (ETH). This is the first time a crypto ETF has used a national index provider, Teva. For investors interested only in ETFs referenced in major digital currencies such as Bitcoin and Ether, this is also possible via the Hashdex BItcoin ETF(BITH11), Hashdex Ethereum ETF(ETHE11), QR Capital Bitcoin ETF(QBTC11), or the QR Capital Ethereum ETF. (QDFI11). The number of investors in digital asset ETFs continues to grow. The Brazilian stock exchange ended April 2022 with 243,000 investors in the ten cryptocurrency ETFs, considering that these investors may have investments in more than one of these ETFs in their portfolios, with a total of BRL 2.6 billion of resources allocated to these assets. The average daily trading volume in 2022 (until the end of April) was BRL 55.9 million, up from BRL 57.8 million in 2021. The most popular cryptocurrency ETF listed in Brazil, the Hashdex Nasdaq Crypto Index, ( HASH11) has 152,000 investors. The fund replicates the Nasdaq Crypto Index (NCI), an index that seeks to globally reflect the movement of the cryptocurrency market and is the first in the world to offer exposure to a basket of digital assets, a total of 10 assets, with the majority of its wallet composed of Bitcoin and Ether. This number exceeds the 121,000 investors in BOVA11, the traditional B3 ETF, which follows the Bovespa Index, the main one in the country. And it comes close to the 179,000 investors in the IVVB11, an ETF that follows the S&P500 index, which brings together the 500 largest publicly traded companies in the US. Another factor that excites investors is the management fee of digital asset ETFs listed on B3. They range from 0.7% to 1.3%, which makes the product very attractive and competitive. As a result, the market is increasingly sized by the number of investors and users that promote the use of this asset class. The product has also been used by institutions that seek to somehow have exposure to the price variation of these assets, even if still experimentally. However, there is still some doubt on the part, mainly from institutional investors, about how to access or offer the asset class, which is not yet regulated. The good news is that in Brazil, initiatives to build regulation have accelerated in recent months. This will bring greater comfort to all players, including institutional ones. Thus, having taken the lead, the trend is for the country to consolidate itself as an important market for this asset class and to develop more and more products related to this ecosystem, maintaining itself as an international benchmark.

About the author

Guilherme Rebane is Head of Latam at OSL, a digital asset platform. He has worked at financial institutions such as BTG Pactual and UBS and specializes in business development and digital products for fintechs and investment banks.

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