When To Choose ETPs vs ETFs?

Exchange-traded products (ETPs) are a group of financial tools that enable buying and selling on stock exchanges similar to regular stock exchanges. ETFs are a smaller group of ETPs but it does not have provisions for direct ownership. The rising popularity of ETFs is attributed to the SEC approval of Bitcoin ETF in January 2024. Crypto users and investors usually choose ETPs only because it is a much older form of investment and many have become accustomed to it. ETFs are a recent phenomenon and it will take time for people to familiarize themselves with the method. Therefore, investors must know the features and differences between the two methods.

Differences Between Exchange-Traded Products (ETPs) and Exchange-Traded Funds (ETFs)

ETPs vs ETFs no longer remain a dilemma once users become familiar with both. 

Structural differences

ETPs is a broad term and is used to describe various exchange-traded investment products to track crypto assets.  Some may have a blend of both blockchain and crypto-related stocks. It offers more exposure to the crypto market. Contrastingly, crypto ETFs track is a specific type of ETP and track the performance of top cryptocurrencies such as Bitcoin and Ethereum.

Exposure to Risks

Crypto ETPs are invariably riskier because their values are tied to the underlying assets and it represents obligation. ETPs are linked with the crypto market and the value has correlations with the credibility of the issuer. ETFs are less riskier because they hold the cryptocurrencies in their portfolio. ETFs do not have links with the financial health of the issuing institution. 

Liquidity

This factor is highly variable for crypto ETPs. ETPs may have lower trading volumes and can make it more expensive for investors. Crypto ETFs generally have higher liquidity than ETPs because they track major cryptos such as Bitcoin and Ethereum. 

Regulatory Supervision

Crypto ETFs have lenient regulatory oversight because of legal ambiguities. This is because most countries do not have definite regulatory frameworks. However, this trend is changing as governments are contemplating bringing new frameworks. Contrastingly, ETFs have tighter regulatory oversight. For instance, the SEC in the US has very stringent and specific rules for both reporting and transparency. This essentially means that users naturally perceive ETFs as safer than ETPs.

Choosing ETPs vs ETFs

Risk appetite is one of the major determinants when choosing between the two. ETPs are more flexible but are riskier than ETFs. ETPs invariably offer more options than ETFs. This is because ETPs have access to a much broader range of crypto products. ETFs on the other hand have limited options. Liquidity, transparency and regulatory oversight are factors, in which the ETFs have an edge. 

Also Read- Top Signs That September 2024 Will Be Bullish For Bitcoin

Bottom Line

Investment goals, risk appetite, range of crypto products, structures, regulatory oversight, and individual experiences are important factors when deciding whether ETP is better or ETFs are better. It is a fact that both methods have their pros and cons and are playing a lead role in the popularization of cryptos.