Crypto Wrapper Wars: Fees, Risks, and Taxes at Stake

The cryptocurrency market has become increasingly complex with various products and wrappers available to investors. Among these, ETPs (Exchange-Traded Products), ETFs (Exchange-Traded Funds), and trusts are popular choices for buying and holding cryptocurrencies.

However, the choice of wrapper can significantly impact an investor's fees, risks, taxes, and even the price tracking of the underlying asset. In this article, we will break down each type of product and highlight their advantages and disadvantages.

ETPs are a catch-all label that includes ETFs, ETNs (Exchange-Traded Notes), and commodity-style vehicles. In Europe, many crypto 'ETPs' are actually collateralized ETNs, which means they involve taking issuer credit risk on top of the underlying cryptocurrency exposure.

ETFs, on the other hand, are regulated funds that issue and redeem shares with authorized participants. This primary market mechanism helps keep ETF prices close to net asset value (NAV). For crypto, some ETFs hold the underlying coins with a qualified custodian, while others use futures-based or synthetic exposure.

Trusts can hold cryptocurrencies but do not offer daily redemptions, leading to potential price deviations from NAV. This is particularly evident in closed-end trusts, where premiums or discounts to NAV can be large and persistent.