Australia’s Premier Digital Asset Firm
Zerocap, an innovative digital asset firm based in Australia, has been at the forefront of the structured product landscape since its inception in 2018. With a diverse portfolio that includes over-the-counter (OTC) trading, market making, derivatives, and crypto custody services, Zerocap has established itself as a key player in the industry. Mark Hiriart, the head of sales at Zerocap, shares his insights on the evolving nature of structured products, the firm’s latest offerings, and regional differences in demand.
Introducing Zerocap: A Leader in Digital Assets
Zerocap has quickly risen to prominence as Australia’s leading institution in the digital asset sector. Operating under the auspices of an Australian Financial Services License (AFSL), Zerocap is authorized to trade financial products such as derivatives with wholesale accredited investors. The firm has forged significant partnerships with major institutions, including ANZ Bank and the Reserve Bank of Australia, further solidifying its reputation. Over the last 18 months, Zerocap has become the primary liquidity provider in Australia, serving clients in more than 50 countries worldwide.
A Game-Changer: Zerocap’s New Semi-Principal Protected Product
Recently, Zerocap announced an exciting new product: a semi-principal-protected structure linked to the CoinDesk 20 Index (CD20). This innovative offering provides investors with upside exposure to the CD20, coupled with principal protection that limits downside risk to just 5%. Investors can anticipate returns of up to 40% on the upside, making it an attractive option for those looking to navigate the current market landscape. This product is the first in a series of structured offerings in collaboration with CoinDesk Indices, designed to cater to various risk appetites.
Filling the Gap: Who Benefits from this New Product?
In the realm of digital assets, the absence of established benchmarks has posed challenges for investors. Unlike traditional markets where products like the NASDAQ or QQQ ETF provide clear avenues for exposure, the crypto space lacks similar structures. Zerocap’s new product is tailored for three distinct groups: family offices and high-net-worth individuals eager to enter the crypto market; investors seeking broad-based crypto exposure without delving into individual assets; and those familiar with Bitcoin who desire diversified investments with managed risk.
Why CoinDesk 20 Index?
The decision to base this structured product on the CoinDesk 20 Index was driven by several factors. Zerocap values the reputable CoinDesk brand and its high-quality index team. Furthermore, the firm’s established relationship with Bullish facilitates access to futures contracts for effective hedging. There is a pressing market need for index products in the crypto sector, and Mark Hiriart’s experience in equity derivatives at investment banks underscores the natural evolution of such products in the crypto space.
Evolving Nature of Structured Products
Historically, two main factors have hindered the widespread adoption of structured products in the crypto market: high volatility and the prevalence of perpetual futures with significant leverage. However, the landscape is changing as more participants begin to hold structural positions. Venture funds and portfolio managers require specific hedging solutions that perpetual products cannot offer due to their unique path dependency.
The Role of Crypto ETFs in Shaping Demand
The emergence of cryptocurrency ETFs is serving as a “gateway” to structured products rather than threatening their existence. The introduction of products such as the BlackRock ETF is attracting new investors into the crypto space. As these participants gain comfort with crypto through ETFs, they are naturally inclined to explore more advanced products for enhanced returns and risk management.
Regional Demand Patterns for Crypto Structured Products
In terms of regional preferences, Asia exhibits a strong appetite for auto-call structures, where investors sell downside options to receive substantial coupons based on price targets. This contrasts with the more conservative strategies seen in the U.S. and European markets. With Zerocap’s expertise, the firm has successfully converted traditional investors into users of crypto structured products and aims to expand this knowledge into the Asian market, subject to regulatory considerations.
Navigating Crypto Volatility: Balancing Risk and Opportunity
As the crypto market matures, different assets are likely to demonstrate varying volatility profiles. While stablecoins maintain their stability and Bitcoin’s volatility may decrease with institutional adoption, opportunities for high-volatility exposure remain abundant, particularly among lower market cap assets. Investors need broad beta exposure through established assets like Bitcoin and Ethereum, complemented by smaller allocations to emerging opportunities.
Unusual Requests in the Structured Product Space
Zerocap’s unique position as one of the few desks offering derivatives on altcoins leads to some unexpected structured product requests. For instance, the firm recently traded an option on FARTCOIN, showcasing the diverse and sometimes eccentric nature of the crypto market.
The Intersection of DeFi and Traditional Structured Products
While decentralized finance (DeFi) and structured products present exciting opportunities, it’s essential to recognize the added complexity that structured products bring to the already intricate crypto landscape. Tokenization can enhance the legal documentation and fungibility of these products, allowing for greater transparency and understanding of the underlying assets. The market is poised for growth with the tokenization of real-world assets (RWA), although widespread adoption may take time.
The Future of Digital Assets as Long-Term Investments
The transition of digital assets from speculative trading vehicles to long-term investments hinges on the demonstration of clear value propositions and use cases for various protocols and tokens. Bitcoin has established itself as a form of “digital gold,” while the long-term viability of Ethereum remains a topic of debate. As these assets integrate further into economic systems, their long-term value propositions will become increasingly tangible.
In conclusion, the structured crypto product landscape is evolving rapidly, with Zerocap leading the charge in Australia and beyond. As the market matures and investors seek innovative ways to manage risk and enhance returns, the future of structured products in the digital asset space looks promising.
