While cryptocurrency markets are volatile and operate 24/7, exchange-traded products (ETPs) typically rely on indexes that provide a reference price at the end of each business day. Discrepancies in the timing of price discovery create performance disparities between ETPs tracking the same crypto asset.
Gilles Boitel, head of Xtrackers sales for Switzerland and Israel at DWS, explains that the more volatile the market, the more important it is to examine the precise moment at which an investor captures the change in the price of the underlying asset.
“The problem is using the latest price instead of the NAV for an ETF comparison. The last transaction on a US equity ETF could have taken place at 2:00 p.m. CET while the market continued to move until 9:00 p.m. CET.
“If the market movement occurred between 2:00 p.m. and 9:00 p.m. CET, the actual valuation of the ETF may be inaccurate. Since cryptocurrencies are very volatile, even a 30-minute price difference could be difficult to handle.
Barbara Schlyter, head of Xtrackers digital products and partnerships, added that Bitcoin experiences its highest liquidity between 3 p.m. and 4 p.m. in London, meaning investors can expect the tightest spreads during this period .
Single-coin crypto ETPs use a market-observable reference price that is used to calculate the ETC Value Per Security (VpS) at the end of each business day, with DWS using MSCI to provide Bitcoin and Ethereum price data.
Schlyter noted that DWS’s crypto ETP products base their pricing data on trades executed between 3 p.m. and 4 p.m. London time, meaning the offering provides the most accurate and fair value.
“In the absence of an official market close, the benchmark calculation methodology also constitutes an execution strategy. This is particularly relevant for clients who trade with a benchmark on the VpS – similar to the net asset value of a fund – in order to minimize transaction costs,” explained Schlyter.
DWS entered the crypto ETP market in April 2023 with the launch of two strategies tracking Bitcoin and Ethereum.
