Prospects of structured products with underlying cryptocurrencies gaining interest globally

But the success of financial investment products themed on cryptocurrencies in India will depend to a large extent on how the regulations in the country take shape

Pinak Ghosh   |   TT  |  Calcutta   |   29.11.21: The prospects of ETFs, fund of funds, hedge funds and other structured products with underlying crypto currencies are gaining interest globally leading to S&P Dow Jones launching its cryptocurrency indices in May.

But the success of financial investment products themed on cryptocurrencies in India will depend to a large extent  on how the regulations in the country take shape.

In October, ProShares, an ETF service provider, launched its first bitcoin linked ETF in the US. Since its launch, the fund has mopped up $1.29 billion assets under by November 26.

“Crypto today is an emerging asset class and a lot of its prospects will depend on how the regulatory stance is taken in each country. It is a space to wait and watch and see how it rolls out,” said Koel Ghosh, head of South Asia, S&P Dow Jones.

S&P Dow Jones Indices in a report has said its cryptocurrency indices seek to provide market participants a tool to measure and assess the emerging asset class. “Our analysis demonstrates that cryptocurrencies are not monolithic and may yield outperformance relative to conventional asset classes, though not without potential risk,” the report said.

While the S&P Bitcoin Index has given an annualised one year return of 303.29 per cent, for the year ended August 31, 2021, the annualised volatility was 72.56 per cent.

Globally cryptocurrencies held a market cap of $2.1 trillion as of August 31, 2021. While the 12-year-old bitcoin is most prominent, there are currently over 10,000 different cryptocurrencies.

Passive growth

Even as cryptocurrencies have caught the eye of some investors, Ghosh said the wider investment community is more comfortable with plain vanilla  equity, with passive investment through index funds gaining momentum.

“In passive, investors need not worry about the set of stocks that are going in or out because there is a set methodology. Markets are turning more efficient and the difference that an active fund manager can make to a very organised large cap space is very minimal. There is also the low cost aspect to passive investing,” said Ghosh.

Coinstore foray

Singapore-based virtual currency exchange Coinstore has begun operations in India at a time the Centre is preparing rules to effectively bar most private cryptocurrencies. Coinstore has launched its web and app platform and plans branches in Bangalore, New Delhi and Mumbai which will act as its base in India , reports Reuters.