Explanation
On top of price risk you take counterparty risk on the issuer. Physically backed ETNs hold the coins in custody, which limits but does not remove that risk.
01
A debt instrument with backing
An exchange traded note is legally a debt security of the issuer, not a share in a fund. Most European crypto ETNs are physically backed: the issuer buys the coin and places it with an independent custodian, with a security interest in favour of holders.
02
What to watch
Check whether the product is fully physically backed, who the custodian is, the annual fee and how liquid it is on the exchange. An ETN without backing is pure counterparty risk: if the issuer fails, you queue up with the creditors.
Key takeaways
- Legally debt, not fund participation.
- Verify physical backing and custodian.
- Counterparty risk is real.