Image by Peter Patel from Pixabay
By: Gerelyn Terzo of Sharemoney
While U.S. regulators have been slow to approve a cryptocurrency exchange-traded fund (ETF), other jurisdictions are taking the lead. Brazil has been an early mover for cryptocurrency investment products. Most recently, Brazilian regulators have given the green light for an Ethereum ETF on the heels of the approval of a similar product for bitcoin (the United States has yet to approve a bitcoin or Ethereum ETF.) Brazil’s regulatory nod strengthens the case for conventional cryptocurrency and increases the chances for mainstream investors to gain exposure to the asset class in the Latin American region.
The Brazilian Securities and Exchange Commission (CVM) has approved the country’s maiden Ethereum-focused ETF, which tracks the performance of Ether, the second-biggest cryptocurrency. QR Capital, whose headquarters are in Rio de Janeiro, is behind the new investment product, which is dubbed “QETH11” and trades on the Sao Paulo-based Brazilian Stock Exchange (B3). The acceptance of cryptocurrencies by B3 has ignited more confidence among institutions to invest in the asset class, considering that this is a major exchange.
Source: Twitter
While Brazil certainly qualifies as an early mover for cryptocurrency ETFs, it might have needed these products more than other jurisdictions. In Brazil, the cryptocurrency industry is lacking regulation, which exposes investors to greater risk. Major U.S. cryptocurrency exchanges such as Gemini, Coinbase and Kraken, for example, adhere to regulatory oversight. On the other hand, Brazil’s cryptocurrency ETFs qualify as regulated investment funds.
According to QR Capital, the new fund will track the CME CF Ether Reference Rate, which is the same index that the Chicago-based CME Group uses. The QETH11 fund will purchase the Ether and take care of custodying the assets for customers, which involves holding the cryptocurrency and keeping it secure on behalf of users. QR Capital will rely on U.S.-based Gemini, the cryptocurrency exchange founded by Tyler and Cameron Winklevoss, for custody services.
Source: Twitter
By providing custody, QR Capital serves as a centralized party between investors and the cryptocurrency. As a result, investors in the ETF will not be responsible for keeping track of their own private keys, which is a feature that is inherent in investing directly in cryptocurrencies. The risk of managing one’s own private keys is that if they are lost or stolen, there is no centralized party through which this vital information, and funds, can be retrieved.
This is not QR Capital’s first cryptocurrency rodeo. QR Capital is also behind one of the first bitcoin ETFs to be launched in the Latin American region. The fund recently made its debut on B3 and trades under the symbol QBTC11. The fund is open to local Brazilians as well as international investors.
Hashdex, another Brazil-based investment manager, is behind yet another bitcoin ETF that trades on B3. According to B3, Hashdex’s bitcoin ETF was the first one to be supported by the Latin American exchange. The asset management firm also partnered with Nasdaq in the United States for the Hashdex Nasdaq Crypto Index ETF, which it says was the first such ETF of its kind in the world. The crypto ETF trades on the Bermuda Stock Exchange and it is available to accredited non-U.S. investors.
Brazil’s Crypto Push
Blockchain and cryptocurrency startups have had to operate in a murky regulatory environment, at best, in Brazil. Nonetheless, that hasn’t stopped institutional and retail investors alike to seek out the asset class. Last August, Brazil’s interest rates hovered at 2%, which also sent savers searching for higher returns elsewhere. Adding insult to injury, the inflation rate in Brazil climbed to a multi-year high of more than 5% in the middle of the health crisis.
The bitcoin price has advanced 260% in the last 12 months. Demand for the leading cryptocurrency in the Latin American nation has skyrocketed. For example, Brazil’s leading cryptocurrency trading platform, Mercado Bitcoin, experienced a trading volume of nearly $5 billion in Q1 2021. This compares to $1.2 billion in trading volume for all of last year.
Mercado recently secured the backing of Japan’s SoftBank. The firm’s Latin American fund directed 200 million USD into the Brazilian crypto exchange’s parent company, 2TM Group, in a Series B round. With the capital, the company plans to bolster its offerings and build more infrastructure to meet the rising demand for digital assets in Latin America.
Crypto Innovation
While Brazil makes history as one of the early movers for bitcoin and Ethereum ETFs, the United States continues to lag. The U.S. Securities and Exchange Commission has more than a dozen bitcoin ETF applications on its desk from high-profile firms, including the likes of ARK Invest, Fidelity and Skybridge Capital. The SEC must also decide on an Ethereum ETF. SkyBridge is among the firms to have submitted an application for an Ethereum ETF with the U.S. securities watchdog.
The cryptocurrency community is largely waiting for U.S. regulators to finally catch up with other jurisdictions. If and when it does, it could trigger a massive bull run in cryptocurrencies, according to cryptocurrency trader and analyst Lark Davis. He points out that the emergence of a gold ETF ignited a 400% rally in the price of the precious metal over a seven-year stretch. Bitcoin is often compared to gold for its store-of-value qualities.
As for Ethereum, what sets it apart from other blockchains is its use of smart contracts. These are agreements that are automatically completed on the blockchain, including releasing payments in cryptocurrency, when certain conditions are met without the need for any third party, such as a bank.
Ethereum is the most popular blockchain network for the decentralized finance (DeFi) movement. It is also the blockchain on which many creators choose to create non-fungible tokens, or NFTs. These are digital assets that contain some object, such as a piece of artwork, music, video, etc. Both niches have caught on like wildfire in the space and even attracted users outside of the cryptocurrency industry.
Source: TradingView
Ethereum’s price has been a beneficiary of these trends, skyrocketing more than 600% in the last 12-month period alone. Now Brazilians will have a way to ride the tide to potential gains in their investment portfolio with an Ethereum ETF that is not yet available in the United States.
