Invest in cryptocurrency

Through ETPs, you can easily invest in crypto-currencies, without needing a digital ‘wallet’ on a crypto platform to hold your cryptos. When you invest in crypto-ETPs, you don't ‘own’ crypto currencies yourself, but invest in a product that fully tracks the value of your chosen crypto currency. Crypto-ETPs are regulated investment products traded on a regular exchange (such as Euronext and Xetra). Remember that cryptocurrencies themselves are not regulated.

Another advantage of ETPs over direct investing in crypto currencies: the party managing the ETPs (CoinShares) and the depository that holds the underlying crypto currencies are supervised - most crypto exchanges and consumer platforms are not.

Komainu is the company that holds the cryptocurrencies of CoinShares' ETPs. The company is a joint venture between Nomura, Ledger and CoinShares. Nomura is one of the largest and most reputable global securities depositories. Ledger is one of the leading companies in security technology of digital assets, such as cryptocurrencies. And CoinShares is a specialist manager of crypto-ETPs.

Komainu ensures that the underlying crypto-currencies are well protected. They store the ‘private keys’ (proofs of ownership) in a ‘cold storage’ (offline) facility and maintain strict security protocols against hacks and theft. Komainu legally stores the crypto-currency of the CoinShares ETPs separately from other assets and does not lend the crypto-currency to other parties (i.e. no securities lending).

Cryptocurrencies are known for their extreme price fluctuations and are widely classified as very risky investments. So it's important to know the risks of crypto investing before you start. For instance, you may lose all your invested money.

The main risks are:

• Extreme price fluctuations in a short time compared to stocks and bonds.
• Technological and cybersecurity risks. The computer systems that communicate with the blockchain to trade and store cryptos are vulnerable to hacks, operational errors and fraud. As a result, cryptos can be lost. As an investor, you then lose your deposited money.
• New laws and regulations. Currently, cryptocurrencies are still largely unregulated. New laws and regulations could negatively affect the value of crypto-currencies and crypto-ETPs.
• Limited tradability of crypto-ETPs. Trading of crypto-currencies continues 24/7. But the crypto-ETPs offered by Peaks are only tradable when the exchange is open. This means that you cannot immediately react to fluctuations in value, and your losses may be greater than if you had been able to act immediately.
• Climate impact. Cryptocurrencies have a large carbon footprint. This could have a negative impact on the value of crypto-ETPs, for instance if governments develop specific climate policies for cryptocurrencies.

Although you do not invest directly in crypto-currencies with Peaks, you do face these risks when adding crypto-ETPs to your portfolio. This is because the value of ETPs are 100% linked to the value of Bitcoin and Ethereum. Consider carefully whether the high risks of crypto currencies fit into your investment strategy.

Cryptocurrencies are a new, young asset class with high risks. So consider carefully whether investing in crypto-ETPs suits you.

Bitcoin and Ethereum ETPs are generally suitable for investors who:

• want to invest in crypto-currencies
• already have knowledge and experience of investing in crypto-currencies
• accept the high risk profile of cryptocurrencies
• can bear the loss if they lose their invested money
• have an investment horizon of at least 5 years

Bitcoin and Ethereum ETPs are generally not suitable for investors who:

• have no knowledge or experience of crypto investing
• want to take little risk with their investments
• want to earn back at least their invested money
• want to invest sustainably

Crypto-currencies like Bitcoin (and Ethereum) have a large carbon footprint: their annual energy consumption is comparable to that of some medium-sized countries. The main reason for this lies in the underlying blockchain technology, which requires large amounts of computing power. This mechanism is known as proof-of-work (PoW), which emerged with the invention of Bitcoin. Validators (also known as ‘miners’) use specialised hardware to solve complex mathematical puzzles. By solving these puzzles (also known as ‘mining’), they validate transactions and secure the network. Solving the puzzles takes a lot of computing power and thus energy. In exchange, they receive crypto-currency. 

There is now a different mechanism from PoW that emits less CO2: proof-of-stake (PoS). The main difference is that network participants must lock a certain part of the underlying asset in order to become a validator (‘miner’). These locked crypto assets are used as collateral to secure the network. The decisive factor determining whether a validator can successfully ‘mine’ a coin is therefore not its computing power, but the amount of crypto assets deployed. This leads to significantly lower power consumption. 

Ethereum moved from PoW to PoS in September 2022. This made Ethereum more sustainable: it is estimated that its energy consumption was reduced by 99.95%. 

Bitcoin does still use the PoW mechanism, as Bitcoin owners and miners generally consider PoW to be more secure. They also expect the scalability of PoS technology to come at the expense of the security or decentralisation of the mechanism.

Crypto-currency trading continues day and night, while crypto-ETPs can only be traded when exchanges are open: usually Monday to Friday from 9am to 5.30pm. At Peaks, we process and trade clients' buy and sell orders once a day, and only on days when the exchange is open.

This means that you cannot react directly to value fluctuations in Bitcoin and Ethereum. If the value of your crypto-ETP goes down, you cannot sell your investment immediately because you have to wait for the next trading moment. This can make your losses higher (or lower) than if you had been able to act immediately.