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Top 5 questions from our investors
Cryptoassets are considered by many to be a nascent asset class. A crypto asset is a bearer instrument that has both its usefulness and its scarcity fully defined by computer systems. In the wake of the success of bitcoin, the first cryptocurrency, many other crypto assets were created. Cryptoassets can be used as monetary assets, but they also have other applications. For example, crypto assets can be used as a type of digital record that proves that certain information existed at some point in time (“time-stamping”); as a digital representation of goods or assets, so that they can be leveraged in more efficient transfer mechanisms; or as digital tokens that incentivize a smart contract to work according to pre-set incentives.
Blockchain is a data structure used by the Bitcoin network and several other networks that emerged later. A blockchain is made up of blocks that record information about transactions performed. Blocks are cryptographically interconnected, so this chain is a trusted record of transactions. Each block contains a summary of the information contained in the previous block (this summary is called a “hash”), so that a network participant is able to validate the entire chain of blocks to confirm that it has not been altered at some point. If used in conjunction with proper validation and incentive systems, a blockchain can act as a decentralized ledger, where it is only possible to add new information, not remove already validated information. In the case of the Bitcoin network, a new block is produced every 10 minutes, on average.
For all of our investment products, we have dedicated processes that rely on the approval of a committee with independent members to evaluate the choice of exchanges, custodians, and OTCs. In addition to understanding in detail each service provider’s technology, we delve deeply into its organizational structure. This includes proving the existence of the controls needed to ensure the service provider’s regulation is aligned with the local requirements of the funds. All of the individual crypto assets we invest in are part of indices that also have their own strict standards. For example, the Nasdaq Crypto Index™ (NCI™) has what we believe is a best-in-class methodology for eligibility criteria. For any asset to make its way into the NCI™, it must be supported by core exchanges and core custodians. Each exchange or custodian must be an institutional-grade and regulated service provider with compliance practices (including AML and KYC) that meet Nasdaq’s strict due diligence process.
New bitcoins are created through a process called mining. Network participants, called miners, perform energy-intensive computational calculations to provide network security. As remuneration for this work, miners receive newly created bitcoins in a special transaction on each block, known as a “coinbase” transaction. Currently, the participant who mines a block is remunerated with 6.25 new bitcoins. Every 210,000 blocks produced, or roughly every four years, the number of bitcoins created in each block drops by half, in an event known as 'halving'.
Smart contract” is a term coined in 1997 by computer scientist, lawyer and cryptocurrency pioneer Nick Szabo to define a contract that is purely implemented by computer systems. Smart contracts are self-executing contracts that can be written in programming code. They enable transactions that are more sophisticated than simply sending and receiving digital assets, and are considered one of the most important applications that digital assets can provide.
Cryptoassets and Blockchain
New bitcoins are created through a process called mining. Network participants, called miners, perform energy-intensive computational calculations to provide network security. As remuneration for this work, miners receive newly created bitcoins in a special transaction on each block, known as a “coinbase” transaction. Currently, the participant who mines a block is remunerated with 6.25 new bitcoins. Every 210,000 blocks produced, or roughly every four years, the number of bitcoins created in each block drops by half, in an event known as “halving.”
A crypto asset is a completely digital currency or token that uses a blockchain to provide a medium of exchange. A key attribute is the use of cryptography, which allows two parties to securely send and receive data anywhere in the world without a trusted third party. Bitcoin (capital “B”) is the network that hosts the world’s first cryptocurrency—bitcoin (lowercase “b”). Thousands of other currencies and tokens have launched since the first bitcoin was created in 2009, but bitcoin remains the largest, making up more than 40% of the total market cap for crypto assets. The Ethereum network token, ether, is the second largest with approximately 20% of the total crypto asset market cap.
“Smart contract” is a term coined in 1997 by computer scientist, lawyer and cryptocurrency pioneer Nick Szabo to define a contract that is purely implemented by computer systems. Smart contracts are self-executing contracts that can be written in programming code. They enable transactions that are more sophisticated than simply sending and receiving digital assets, and are considered one of the most important applications that digital assets can provide.
The Bitcoin network establishes ownership of bitcoin via recorded transactions on its blockchain, which serves as a fully transparent, public record of bitcoin activity. A decentralized network of computers (nodes) validates and confirms transactions nearly instantaneously, regardless of location. These nodes can access the entire blockchain and collectively confirm bitcoin ownership.
Once a transaction is validated, it is packaged with other recent transactions into a “block” to be permanently added to the blockchain. Before these blocks of data are added to the blockchain, the nodes assign each block a unique alphanumeric signature (a hash) which will be linked to the previous block, creating the “chain” part of the blockchain. This immutable linkage to the blockchain is the most important part of securing a bitcoin transaction, so the Bitcoin network provides incentives to nodes that spend the time and energy to make this happen. These nodes, called miners, are rewarded with bitcoin. Because Bitcoin has a fixed supply cap—there will only ever be 21 million bitcoin—the incentives for miners change as more bitcoins come into circulation.
The simplest definition of a blockchain is a decentralized public ledger where transactions are confirmed by a network of compensated participants. Blockchains can have different consensus mechanisms, such as PoW or Proof-of-Stake (PoS), which define the rules for validating transactions. For most crypto assets, each network node maintains a copy of the blockchain. This helps ensure the blockchain’s security by preventing anyone from altering transactions or taking control of the network.
Bitcoin’s blockchain was a novel idea due to the combination of technologies used to create a truly decentralized and immutable public ledger. Previously, financial transactions were dependent on banks and other entities managing both sides of the transaction, including maintaining personal information about the parties and placing restrictions on certain transactions. Fully decentralized blockchains do not rely on any intermediary to confirm transactions and are not limited by geography, allowing for the elimination of gatekeepers from nearly any type of peer-to-peer transaction.
The Lightning Network was launched in 2018 and is considered by many to be the most impactful recent development in the Bitcoin network. The Lightning Network allows two users to transact on the network with unprecedented speed and lower relative costs.The Lightning Network is an example of a second layer (“layer two” or L2) solution that leverages the security and decentralization of the Bitcoin network.
The bigger the problem a technology solves, the greater its value. Crypto assets and blockchain technologies have properties that have a lot of value in an increasingly digital world like ours. The total crypto market cap represents a tiny fraction compared to other asset classes. If the technology delivers its potential, it is reasonable that the market size will expand significantly.
ETP Structure & Advantages
ETPs are collateralized debt obligations that are guaranteed by the asset basket at 100%. The underlying crypto assets are held in an offline wallet, also called “cold storage.”
In the case of Hashdex’s ETPs, the securities will be issued by Hashdex’s Swiss subsidiary, Hashdex AG. The crypto assets that serve as the underlying or underlying components of the relevant series of ETPs will serve as collateral for the ETP and will be held in separate wallets of the issuer custodied by independent custodians.
For Swiss resident individuals, the sale or other disposal of a unit of ETP held as part of his or her private assets is a tax-free private capital gain (unless such individual is classified, for income tax purposes, as a “professional securities dealer”).
A holder of a unit of ETP who is not resident in Switzerland for tax purposes, and who during the taxation year has not engaged in trade or business carried on through a business operation or permanent establishment in Switzerland, will neither be subject to income tax and capital gains tax nor net wealth or capital tax in Switzerland.
ETPs are structured and operate similarly to traditional Exchange Traded Funds (ETFs). However, while ETFs are funds, ETPs are not but rather are collateralized debt securities issued by Special Purpose Vehicles (SPVs) that are typically domiciled in an offshore center. These SPVs are not regulated under the UCITS regime and/or any Swiss of foreign regulator for collective investment schemes.
Exchange Traded Products (ETPs) are non-interest paying collateralized debt securities designed to replicate the performance of an underlying index or asset, by either directly buying and holding those same securities or assets (physical replication) or by entering into a contractual agreement (i.e.,a swap contract) with a counterparty that is obliged to provide the daily return of the underlying index or asset (synthetic replication).
Since crypto is a relatively new asset class, there are still many issues investors face when investing directly, such as: custody, security, protecting private keys, opening external wallets, tax filings, and others.
At Hashdex, our mission is to bring crypto opportunities to the mainstream. ETPs level the playing field for a broad range of investors to access alternative asset classes at a lower ticket size and directly from a brokerage account. The product has a liquid structure and can be bought and sold on secondary markets throughout the day.
In addition, ETPs are regulated by the exchanges they are listed on, such as the SIX Swiss Exchange. Entire portfolios are available daily and prospectuses provide additional transparency.
Lastly, ETPs provide a higher level of cost and tax efficiency when compared to investing in mutual funds, conventional debt instruments, or holding the underlying assets directly. ETPs track indices and do not bear the costs of discretionary/active portfolio management. In addition, the products have lower portfolio turnover and the ability to do in-kind redemptions, which allows investors to incur capital gains tax only when the position is sold.
The process that enables an ETP to offer the return on a diversified basket of securities is commonly referred to as the “create and redeem mechanism.” The creation/redemption mechanism keeps prices in line with the underlying assets and is an efficient and fair way to acquire new securities.
If the Authorized Participant (AP) wants new products (units) of a series of ETPs they have to acquire, in the correct proportion, all the underlyings the ETP wants (or, for reasons of collateralization has) to hold. The AP then delivers this basket of underlyings or underlying components to the issuer in exchange for units of the relevant series of ETPs. The AP can then sell these ETP units to regular investors on the open market. This process creates units of the ETP.
The process can also run in reverse to redeem units. The AP delivers units of ETPs, and gets all of the relevant or underlying components, which can then be sold on the open market.
Hashdex's ETPs
Crypto-focused asset manager: Hashdex is one of the largest crypto-focused asset managers worldwide. We launched the first crypto ETF in the world and are trusted by over 260,000 clients. We have extensive expertise and proprietary algorithms for efficient creation/redemption processes with tight spreads.
Access: Hashdex’s ETPs are accessed by retail investors at a lower ticket size and directly from brokerage accounts, as well as institutional investors through APs and their OTC desks.
Pricing: In addition to the cost efficiency of the ETP structure, Hashdex works with best-in-class service providers and offers competitive pricing without compromising on operational excellence. Most of the scaled basket products in Europe charge a 2.5% management fee.
Regulation friendly: Hashdex Asset Management Ltd. is a regulated asset manager in Brazil by CVM, in the Cayman Islands by CIMA, and is an Exempt Reporting Adviser in the U.S., with listed regulated ETFs and mutual funds in different jurisdictions. Many peers have unregulated structures that are not listed on regulated exchanges and are not proactively engaging with regulators.
Basket exposures: We believe that beta and basket products are the most compelling approach to investing in the nascent crypto economy. While many of our peers offer mostly single-asset ETPs, we offer the most comprehensive set of basket products to our clients, in addition to single-asset exposure.
Nasdaq global partnership: Hashdex co-developed with Nasdaq a benchmark index for the crypto market. None of the current basket ETPs track an index provided by Nasdaq or another trusted traditional index provider.
Governance and best-in-class service providers: Hashdex exists to bridge the gap between traditional financial markets and the crypto economy. Therefore, we offer both operational savviness and the security and compliance layers so important to traditional markets, as well as crypto expertise.
Any complaints about the sale of ETPs should be made directly to your broker or platform provider. Other complaints should be made via email to investors@hashdex.com. Making a complaint will not prejudice your right to take legal action.
Individuals can buy or sell our ETPs on exchange or directly with a bank or broker over the counter. Our products can be found through their corresponding ISIN, symbol, WKN, or Valor at an eligible financial intermediary. The Hashdex Nasdaq CME Crypto Index Europe™ ETP is currently listed on the SIX Swiss Exchange. In a later stage, we plan to have it eligible for an offering in the European Union and listed in the following exchanges: Deutsche Borse, Xetra, Euronext Paris, Euronext Amsterdam,and Nasdaq Nordic. If our products are not available on a specific platform, contact your financial intermediary to request access.
The market price of ETPs tracks the equivalent value of the underlying asset and is close to the net asset value (NAV). However, since the market price is determined by supply and demand in the secondary markets, there may be a premium or a discount relative to the NAV.
The NAV is considered to be the fair value of the underlying asset. Therefore, the daily NAV is calculated using the relevant price index at the end of the day.
For more information on pricing methodology, please refer to our product pages.
The Total Expense Ratio (TER) for Hashdex’s ETPs is 1.49% per annum.
In addition, because ETPs are bought and sold like stocks or other classic financial instruments, the usual transaction costs charged by brokers may apply. These are independent of Hashdex and are charged by your bank/broker.
For more information on fees, please refer to our product pages.
Dedicated to bringing crypto opportunities to the mainstream, Hashdex partnered with Nasdaq to co-develop the Nasdaq CME Crypto Index™ (NCI™) and Nasdaq CME Crypto Index Europe™ (NCIE™), which are designed to broadly track this rapidly growing asset class. These indices serve as trusted benchmarks for crypto asset investing. Assets represented in the NCI™ and NCIE™ are subject to strict eligibility requirements to guarantee asset legitimacy, institutional-grade custody, and meaningful market representation. The indices are rebalanced quarterly. For more information on methodology, please refer to our product page.
The iNAV is a measure of the intraday NAV of an investment.
The minimum invested amount is the price of one ETP unit.
Hashdex offers ETPs that provide investors with access to listed products that track the Nasdaq Crypto indices and their underlying digital assets. The products are denominated in USD and tradeable in the trading currencies USD, CHF, EUR or GBP.
ETPs are senior secured debt obligations (perpetual, collateralized, and non-interest-paying) tracking the value of an underlying asset. Hashdex’s ETPs are collateralized by their respective asset baskets at 100%.
More information on our individual ETPs can be found on their respective product pages.
In order for eligible investors to access documents such as a Fact Sheet, Prospectus, Final Terms, KID, and others, please refer to our product pages.
Our ETPs are accessible to European professional investors and Swiss professional and retail investors.
Security, regulation and governance
The prospectus for the Hashdex’s Exchange Traded Products Issuance Program, under which the Hashdex Nasdaq CME Crypto Index Europe™ ETP is issued, has been approved by SIX Exchange Regulation AG as a Swiss prospectus review body and permits the offering of our product to the public in Switzerland and admission to trading on Swiss trading venues and, once the necessary requirements are in place, other regulated markets.
Hashdex uses the best market practices for asset security and fraud prevention. Our qualified custodians developed multiple measures to ensure the security of the underlying assets, such as:
Crypto assets are stored in high technology deep-cold storage units, which are systems completely disconnected from the internet;
The administrator and asset custodian have to authorize transactions, Hashdex does not have access to any private keys;
Geographic distribution is used for private keys (sharding);
Insurance policies are in place against theft, private key loss, and fraud;
Daily direct transactions with market makers and over-the-counter (OTC) desks;
Assets are never stored on exchanges (maximum 24-hour stay during rebalancing, subscriptions and redemption);
Crypto assets are screened for anti-money laundering (AML) purposes upon receipt and units are only created if the risk assessment is acceptable, mitigating risks of receiving funds from bad actors.
Authorized Participants (APs) are the only parties that can purchase units directly from Hashdex AG by delivering the relevant underlyings in-kind. Our ETPs are served by reputable players approved according to Hashdex’s rigorous Know-Your-Product (KYP) Assessment by the Risk and Compliance teams.
Cumberland DRW LLC is a member at FINRA and holds a Money Service Business (MSBs) license pursuant to the Bank Secrecy Act (BSA), under the oversight of the Financial Crimes Enforcement Network (FinCEN);
Flow Traders is registered and regulated by the Netherlands Authority for Financial Markets (Autoriteit Financiële Markten);
Jane Street is a member at FINRA and holds a MSB license pursuant to the BSA, under the oversight of FinCEN.
Founded in 2018, Hashdex is a global pioneer in crypto asset management. We are building pathways to prosperity by opening the crypto ecosystem to the world. Trusted with over $390M (as of Feb 28, 2023) in client assets, our simple and secure funds help innovative investors join the emerging crypto economy. Dedicated to bringing crypto opportunities to the mainstream, we partnered with Nasdaq to develop the Nasdaq CME Crypto Index™ (NCI™) to provide global investors a reliable benchmark for this dynamic asset class. In 2021, we introduced the world's first crypto index ETFs, enabling many investors to allocate to crypto for the first time. We believe open blockchains are unlocking global growth and making economic opportunity more abundant and accessible. We are committed to accelerating the development of the crypto ecosystem by empowering everyone to participate in this transformational opportunity for the world.
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