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Crypto FTX ETPs Take Dizzying Falls

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Investors in three digital currency funds risk being wiped out as crypto exchange FTX wobbles on the on the verge of collapse.

The trio of exchange-traded products are invested solely in FTT, the digital token of the FTX platform, which plunged more than 80% this week as a run on FTX cast doubt on its survival.

The exchange-traded note VanEck FTX Token (VFTX), the 21Shares FTX Token ETP (AFTT) and the CoinShares FTX Physical FTX Token ETP (CFTT) had combined assets of 27.7 million as of October 31, according to data from Morningstar Direct, having launched between February and April this year.

The products are listed on several stock exchanges in mainland Europe and registered for sale in the EU and Switzerland, but not in the UK or the US.

The fallout from FTX’s collapse is also wreaking havoc on a range of other cryptocurrency ETPs, particularly those invested in Solana, which has fallen 47% since Monday amid speculation that FTX will have to sell its large stake in the token in order to raise vital funds.

Bitcoin fell 18% over the same period. The ProShares Bitcoin Strategy ETF (BITO), the world’s largest crypto ETP, saw record trading volume amid the chaos on Tuesday, with 49.3 million shares traded, worth $576 million, 64% more than the previous record.

The peak volume for COCKthe ProShares Short Bitcoin Strategy ETF, a bet on a price decline, was 366% above any other day since its launch, with 7.2 million shares worth $288 million changing of hands, according to ProShares.

Some are likely to criticize ETP providers, regulators and exchanges who were happy to facilitate products that made it easier for retail investors to access FTT, a digital coin operated by a single unlisted company.

“Many of these vehicles [crypto ETPs in general] were created entirely to legitimize cryptocurrencies and integrate them into the mainstream financial system,” said Kenneth Lamont, senior fund analyst for passive strategies at Morningstar.

“We have always warned against this. Just because something is in a package and you can buy on a platform doesn’t mean it meets all the requirements you would expect from other financial instruments,” he added.

However, ETP suppliers have defended their decision to offer these products.

“At the time we reviewed it, FTX had a great reputation. Looking back, it’s a sad reality that FTX is struggling,” said Townsend Lansing, chief product officer at CoinShares.

“Our products are designed to individually track the price of the coin, so if the coin goes down, that’s what they’re going to do,” he added.

Lansing rejected any suggestion that CoinShares should not have offered an FTX product due to the inherent level of risk to investors, arguing that “it is not a standard financial service that is required.”

“We believe in building transparent, well-regulated products and allowing investors to make the choices they want to make,” he said. ” We are waiting [investors] have a level of understanding and appreciation of the risks.

Eliézer Ndinga, Director of Research at 21Shares, said AFTT “is meant to track the daily returns of the underlying token. It has performed extremely well despite the fact that we have seen large pullbacks over the past 48 hours.

More broadly, Ndinga said the crypto industry “has been impacted by the global economy. It’s been a tough year for many risky assets, not just crypto.”

Lamont said the episode, allied to the broader crypto market crash, could be seen as vindicating the actions of the UK’s Financial Conduct Authority, which has constantly opposed the introduction of crypto-based ETPs.

“I’m sure there’s been a lot of pressure on the regulator. London’s position as a global financial center has been questioned and what has made [London] such success over the past 30 to 40 years has been deregulation and the adoption of new products,” Lamont said.

“To some degree, they may be justified in standing aside and waiting.”

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