Kenya’s Listing of the World’s First Cryptocurrency Exchange Traded Fund

One ETF Step For Kenya, One Crypto Step for Mankind

A decision to list an exchange traded fund could prove to be one big step for Kenya and one big step for mankind. Kenya, known in recent times for its inspiring tech culture, has yet again made the headlines for pushing the envelope. Reports have surfaced of plans to list a cryptocurrency ETF through the Nairobi Stock Exchange before the end of quarter 1 of 2019. This comes  as a surprise to some who expected the US Securities and Exchange Commission to approve the first crypto-backed ETF. Sadly, most of the applications made to the financial regulator have either been delayed or rejected. 

Investment firm Badoer, has held multiple meetings with the Nairobi Stock Exchange about listing a crypto-based fund. According to Badoer:

“The Nairobi Stock Exchange has been very open to us. The idea is since I’m in cryptocurrency, to list the world’s first ETF in crypto. This is going to bring a lot of value to Kenya.”

An exchange traded fund is a type of investment fund that is traded on a stock exchange. An ETF is a marketable security that tracks an index, commodity, bonds, or baskets of assets like an index fund. Unlike mutual funds, an ETF trades like a common stock on a stock exchange. ETF prices change throughout the day in relation to trading activities. ETFs typically have higher daily liquidity (easy entry and exit) and lower fees than unit trust shares. ETFs may prove to be key financial instruments which allow for significant mass adoption of cryptocurrencies by investors. As more institutions engage in activities with cryptocurrency ETFs, the knowledge and expertise of cryptocurrencies as a mode of investment is likely to grow in the investment community.

What to Expect

In November, 2018, Switzerland approved an exchange traded product (ETP), similar to a cryptocurrency ETF, except ETPs are not subject to the Collective Investment Scheme Act (Cisa) of Switzerland and are thus, not supervised by the Swiss Financial Markets Supervisory Authority. 

The ETP is a fully collaterized and non-interest paying bearer debt security, which is issued a security and traded and redeemed in the same structure. Bitcoin comprises the largest share of the HODL ETP at 48%, followed by XRP (30%), Ethereum (17.6%), and smaller shares of Bitcoin Cash and Litecoin.

The recently launched Bitcoin ETP on the Swiss Stock Exchange, experienced record high volumes despite steep global declines in Bitcion purchases. As CEO at FX Hedge Fund, Su Zhu, suggests, it may be indicative of the institutional investors in Switzerland buying the dip as the correlation between volume and price continues to be very strong at (-68%). 

Taking the above mentioned scenarios into consideration, one could assume that new investors in cryptocurrency ETFs in the Nairobi Stock Exchange of Kenya, could follow similar patterns of behaviour. This could be an outcome, however, the alternative financial products available in Kenya will be a significant determinant of whether or not such patterns of behaviour are followed in Kenya. Hear-say of significantly higher profit margins in cryptocurrencies are likely to prick the ears of new investors. Bullish activity may ensue as a result of this but it is not guaranteed. 

The Nairobi Stock Exchange comprises approximately 66 listed companies with a daily trading volume of $10,000,000 and a total market capitalisation of $23,000,000,000. It was only in 2017 that the first ETF in East Africa was introduced by Barclays bank. 

Liberation by Cryptocurrency ETF

34 African sovereign and corporate bonds are listed on the London Stock Exchange while 110 African companies , with a total market capitalization of $200,000,000,000 are listed or trading on the bourse. The debts are breathtakingly high, to say the least. Coupled with the significant amount of debt distress risks which a growing number of African governments experience, alternative forms of finance may need to be created to enable African states to liberate themselves and their electorate from debt slavery. While it may still be considered early days, cryptocurrency ETFs, may with time, allow for the convergence of traditional capital raising exercises with initial coin offerings. It is indeed early days but not too soon to plan for the opportunities ahead. ETFs based on cryptocurrencies and social responsibility can prove to, in the future, be of great aid to the challenges of promising African nations such as Kenya. 

34 African sovereign and corporate bonds are listed on the London Stock Exchange while 110 African companies , with a total market capitalization of $200,000,000,000 are listed or trading on the bourse. The debts are breathtakingly high, to say the least. Coupled with the significant amount of debt distress risks which a growing number of African governments experience, alternative forms of finance may need to be created to enable African states to liberate themselves and their electorate from debt slavery. While it may still be considered early days, cryptocurrency ETFs, may with time, allow for the convergence of traditional capital raising exercises with initial coin offerings. It is indeed early days but not too soon to plan for the opportunities ahead. ETFs based on cryptocurrencies and social responsibility can prove to, in the future, be of great aid to the challenges of promising African nations such as Kenya. 

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