Starting yesterday you could invest into the value of bitcoins on a regulated exchange, without having to buy bitcoins. On the Nasdaq Nordic in Stockholm the Exchange Traded Note, Bitcoin Tracker One, traded for close to two million Swedish kroner on it's first day. But what does that mean? What is an ETN and what does this mean for bitcoin?
|Bitcoin Tracker One started trading on Nasdaq Nordic. Photo: Gr1st // CC BY 2.0|
An Exchange Traded Note, or ETN, is a financial security that's traded on stock exchanges. Traders can buy and sell shares of the ETN exactly like shares of company stock. Unlike company stock, shares of ETN's don't give you ownership of what they represent, they simply give you access to it's value without having to purchase the underlying asset directly. In other words you get synthetic access to the value of bitcoins.
Bitcoin Tracker One follows the average value of bitcoins in USD across three exchanges, minus fees to the issuer. It is then divided up so that 200 shares of Bitcoin Tracker One represents the value of one bitcoin. You can see a good description of how this is structured on XBT Providers website.
Why not buy bitcoins directly?
If you don't get ownership of any coins, why would you buy this ETN? Because it gives convenient access to the value of bitcoin for investors. The ETN allows people to buy in to the value of bitcoin through the same exchange where they buy other securities – meaning investors do not have to learn how to buy, sell and store bitcoins securely. It removes boundaries that have prevented individuals and companies from investing into bitcoin.
ETNs are not without risk, as they only track the underlying asset and do not give ownership of it you're at risk of the credit provider defaulting. If XBT goes bankrupt finding a buyer for the ETN may be very difficult. On top of this all of the regular risk associated with bitcoins apply.
This ETN opens bitcoins up to a wider audience that may have an interest in bitcoin and believe in its future but who still see it as too complicated to buy in. It also gives more legitimacy towards the currency and helps spread the word of bitcoin.