This advisory newsletter covers two main topics: evaluating crypto exchange-traded products (ETPs) and borrowing against bitcoin. Sarah Cummings from Morgan Stanley explains that beyond traditional ETF metrics like fees and liquidity, crypto ETPs require due diligence on custody arrangements, sponsor profiles, and benchmark methodologies. Spot bitcoin ETPs, launched in January 2024, are structured as grantor trusts; investors should distinguish gross vs. net expense ratios, assess liquidity relative to the underlying asset, and understand tracking error primarily driven by fees. Custody is a key differentiator, as providers range from crypto-native to traditional custodians with varying regulatory protections. Benchmark construction also matters for tracking accuracy. In the expert Q&A, Ryan Tannahill advises that centralized lenders typically require custody of bitcoin for loans, margin calls are the main risk (potentially triggering taxable liquidations), and borrowing is preferable over selling only if the client has high conviction in bitcoin's appreciation. The newsletter also notes regulatory developments: US Senate advancement of the Clarity Act, Japan's recognition of foreign stablecoins, and the Bank of England's planned stablecoin rules.

Key facts

• Spot bitcoin ETPs launched Jan 2024; assess custody, sponsor, and benchmark.
• Custody varies: crypto-native vs. traditional custodians with different protections.
• Margin calls on bitcoin loans can force taxable liquidations at worst times.
• Borrowing vs. selling depends on conviction in bitcoin's appreciation.
• US Senate advances Clarity Act; Japan recognizes foreign stablecoins.

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