How the Hashdex Nasdaq Crypto Index ETF Creates New Shares
The world of cryptocurrency can be as confusing as it is exciting, and one of the puzzles people are often trying to solve involves how crypto exchange-traded funds (ETFs) like the Hashdex Nasdaq Crypto Index ETF create new shares. This article aims to shed some light on the subject. Along the way, we’ll reference recent claims made by crypto commentator Chad Steingraber and clear up any confusion that may arise.
The Basics of the Hashdex Nasdaq Crypto Index ETF
The Hashdex Nasdaq Crypto Index ETF, which can be found on the Bermuda Stock Exchange, is designed to follow the Nasdaq Crypto Index (NCI). This ETF includes a mix of various cryptocurrencies with different levels of investment in each. For instance, Bitcoin makes up the lion’s share at 64.33%, followed by Ethereum at 26.08%, Solana at 5.26%, and XRP at 1.48%.
The ETF currently holds 79,579 shares, each valued at a net asset value (NAV) of $7,008. Given the current price of XRP at around $0.4714 per token, each share of the ETF includes approximately 215.85 XRP, which adds up to roughly $101.7. Despite XRP making up only 1.48% of the ETF’s holdings, recent discussions have stirred up considerable interest.
Chad Steingraber’s Claims Explained
Recently, Chad Steingraber made headlines in the cryptocurrency community with claims he posted on X, suggesting that for every 1,000 new shares generated by the Hashdex Nasdaq Crypto Index ETF, the fund would buy 215,854 XRP, no matter the price at the time.
Since these funds will be “Cash Creates” – that means when NEW shares are created, the fund uses the cash to buy the underlying assets from the market.
As an example, if 1,000 new shares are made – the fund would then be buying 215,854 XRP NO MATTER THE CURRENT PRICE 👍 https://t.co/wcIVNt19xt
— Chad Steingraber (@ChadSteingraber) July 1, 2024
The Reality Behind the Claims
Although Steingraber’s bold assertion got a lot of people talking, a closer look reveals a different story. The Hashdex Nasdaq Crypto Index ETF operates under an “in-kind redemption” model, not a “cash create” one. What does this mean? Let’s break it down.
Understanding In-Kind Redemption
In-kind redemption means that whenever new shares are created, the ETF doesn’t purchase additional cryptocurrencies, such as XRP, from the market. Instead, the fund exchanges the underlying assets it already holds to create these new shares. This mechanism helps it maintain a balanced portfolio without creating additional market pressure by buying more of the assets it holds.
In other words, if the ETF needs to create new shares, it will reallocate the assets in its possession rather than buying new ones outright. This clears up the misconception that the ETF will flood the market with buy orders for XRP anytime new shares are issued.
Clearing Up the Confusion
It’s important to mention that Steingraber’s commentary conflated the existing Hashdex Nasdaq Crypto Index ETF with the soon-to-be-launched Hashdex Nasdaq Crypto Index US ETF. The latter is designed for the U.S. market and follows different regulatory guidelines. This new US-based ETF will mostly hold Bitcoin and Ethereum and follow a cash create redemption model, but it will not include XRP or any other asset.
A Little History and Future Prospects
The original Hashdex Nasdaq Crypto Index ETF launched in February 2021 and has been available for trading on the Bermuda Stock Exchange ever since. This ETF has boasted impressive returns, yielding a 66.97% increase since its launch and a 93.60% rise over the last year. This shows the ETF’s robustness and its utility as an investment vehicle, despite the complexity of its structure.
As the Hashdex Nasdaq Crypto Index US ETF prepares to launch, it’s expected to attract a plethora of U.S.-based investors looking for managed exposure to cryptocurrencies like Bitcoin and Ethereum. However, the specifics regarding its operations differ significantly from its predecessor, as it will follow a cash create model and exclude XRP from its holdings.
Final Thoughts
While the details around how ETFs like the Hashdex Nasdaq Crypto Index ETF create new shares can be a bit perplexing initially, understanding the difference between in-kind redemption and cash create models clarifies a lot. Regardless of the nuances, these ETFs offer a structured way to gain exposure to the dynamic world of cryptocurrencies, providing new avenues for both seasoned and novice investors.
Remember, the information presented here should not be treated as financial advice. It’s always a good idea to do your own research before making any investment decisions.