While crypto markets are volatile and operate 24/7, exchange-traded products (ETPs) typically rely on indices which offer a reference price at the end of each business day. Discrepancies in price discovery timing create performance disparities between ETPs tracking the same crypto asset.
Gilles Boitel, head Xtrackers sales for Switzerland and Israel at DWS explained the more volatile the market, the more important it is to look at the precise time at which an investor is capturing the price movement of the underlying asset.
“The issue is using the last price instead of NAV for an ETF comparison. The last trade on a US equity ETF might have happened at 2pm CET while the market will have continued to move until 9pm CET.”
“If the market movement was between 2pm and 9pm CET, the actual valuation of the ETF could be imprecise. Given that cryptocurrencies are highly volatile, even a 30 minute difference in price discovery could be difficult to manage.”
Barbara Schlyter, head of Xtrackers digital products and partnerships, added bitcoin experiences its highest liquidity during the 3-4pm London time window, which means investors can expect the tightest spreads during this period.
Single coin crypto ETPs use a market observable reference price which is used to calculate the Value per ETC Security (VpS) at the end of each business day, with DWS using MSCI to provide the bitcoin and ethereum price data.
Schlyter noted that DWS’ crypto ETP products based their pricing data on trades executed between 3-4pm London time, which means the offer the most accurate and fair value.
“In the absence of an official market close, the benchmark calculation methodology also acts an execution strategy. This is particularly relevant for clients trading benchmarked to the VpS - similar to a fund’s Net Asset Value - to minimise transaction cost,” Schlyter explained.
DWS entered the crypto ETP market In April 2023 with the launch of two strategies tracking bitcoin and ethereum.
