21Shares aims for institutional grade offering in crypto space
March saw the rebranding of Amun AG into 21Shares as the company sought to separate its technology products from its financial business – and also to produce a more financially appropriate name for a Swiss-based company with four spoken languages within its offices. There is a crypto hint in the new name too as it is a homage to the total maximum supply of bitcoin, as only 21 million bitcoin will ever be in circulation.
21Shares describes itself as a technology company that creates financial on-ramps to invest, trade, and secure digital assets. It launched in 2018 and has a range of 25 ETPs based on crypto assets listed on the SIX Swiss Exchange, BX Swiss and Boerse Stuttgart.
Hany Rashwan, founder and Chief Executive Officer, explains that he and his co-founder and President, Ophelia Snyder had similar backgrounds, albeit from different geographies – Egypt for Rashwan and Italy for Snyder.
Rashwan’s working background was ‘tech heavy’ having launched two fintech companies in Silicon Valley, the second of which he sold in 2017. Snyder’s background was more in the financial world, having worked in structured products and in banking at UBS.
Rashwan was introduced to bitcoin in 2012. “The first time I got some, they were worth USD15,” he says. “I tossed them aside as they weren’t that important back then and I dismissed the crypto industry as I thought it was a smaller opportunity, not one that would be from scalable groups.”
By 2017, Rashwan observed that other countries were getting involved in the crypto revolution. “We had a light bulb moment that there was something here that could have a significantly larger market size and a significantly larger opportunity size. It wasn’t just anonymous cash on the internet but something that could be built into a scalable tech product for the finance world.”
The initial investments in bitcoin on behalf of both their families revealed that fees could be 15-20 per cent and the premium to NAV could be 20 to 100 per cent, and there were structures with significant counterparty risk.
“Nothing was very professional or made our families very comfortable,” he says. “So, we started looking into it and building it, initially for our families, and then it escalated.”
The pair spoke to regulators across 27 jurisdictions around the world, on every continent except Antarctica, and found lots of different approaches and structures, until they decided to settle in Switzerland, with its rich history of storing and listing commodities, especially gold, to which Rashwan likens crypto currencies.
November 2018 saw the firm list the world’s first physically backed crypto ETP, based on a basket, an index, of the top five crypto assets.
“This is pretty cool,” Rashwan says. “It covers between 75 and 80 per cent of the total market cap of the crypto world with one stock on the SIX Swiss Exchange.”
That product was followed by the Bitcoin ETP in early 2019. Rashwan explains that the Swiss ETP product is a specific structure in Switzerland which is very conservative and has to be 100 per cent collateralised at all times. The route to getting a crypto ETP listed was to liken it, again, to gold. “Switzerland is the safest jurisdiction which adds an air of comfort, even while we are on the cutting edge of innovation,” he says. “We convinced the regulators that as you can custody gold in a vault, you can with crypto through storage of private keys.”
All assets managed by 21Shares are held at a distance with third party service providers providing custody, index producers, and Jane Street and Flow Traders provide market making services.
“As a firm we have more crypto products than any other company despite being the youngest one,” Rashwan says, with pride. It has 11 crypto products, plus it runs three other indices built for third party companies, Signum, Bitcoin Suisse and Bitwise.
The whole range totals 25 products and assets have grown since launch in November 2018 with USD5 million to USD65 million, and the products were available to only Swiss investors until January 2020, mostly institutional investors.
This week has seen the firm announce that it is to launch its 21Shares Bitcoin ETP, 21Shares ethereum and crypto basket index HODL in GBP on the Swiss SIX Exchange, thereby reducing FX conversion costs. This is the fourth currency in the range, following USD, EUR and CHF.
As a mark of its commitment to providing institutional style crypto products, the firm has an income generating crypto product (Tezos – XTZ) and a short bitcoin product (SBTC). The Tezos ETP produces income through a proof of stake, rather than proof of work model which pays out in a daily dividend that annualises at 6-7 per cent per annum.
The short or inverse model is an answer to a request from investors. “We saw an absolute dearth of institutional products overall, especially now in the burgeoning space of crypto derivatives, which made Bitcoin pretty difficult to short,” Rashwan says.
“Futures and options were becoming more popular but in the same way as leveraged and short ETPs allowed institutional grade trading in the traditional world, we wanted to bring that to the crypto world but found it was dominated by unregulated or loosely regulated companies. We wanted to bring a professional institutional Swiss quality product to the mix so we felt that there should be something you could utilise under the 21Shares umbrella to buy a long or short theme.”
The short product is a wrapper on top of the existing infrastructure. “So, we hedge by borrowing bitcoin and immediately sell the assets using spot volumes,” Rashwan says. “However, there are a couple of different strategies when we go into more complicated products – it’s a good wrapper for users to get short exposure without dealing with the complexities under it.”
The expansion of distribution out of Switzerland in January this year came from achieving a EU approved prospectus. “It’s a huge part of why we are super excited to go into territories that we haven’t yet distributed to,” Rashwan says. “We believe philosophically that a great tide will lift all boats and while crypto ETPs are a small asset class at the moment, we have the most expansive and institutional grade product range.”
The average price of a unit of one of the 21Share crypto products is USD20 to USD40. “It’s priced to be accessible to retail investors and institutions across the continent,” he says.
Investors have tended to be private banks, ultra-high-net-worth, family offices and retail. Performance for the bitcoin ETP is 33 per cent year to date.
Looking forward, more products, more formats, more geographies and more currencies are planned. Rashwan says: “We are seeking to create a very professional and institutional grade product suite and there is a lot more we can do.”
21Shares’ managing director, Laurent Kssis, profiled here, says: “We would like to white label and work with partners who see a commercial aspect in crypto, using us as the specialists in crypto and very well suited to issuing an exchange traded product for another firm.”