When VanEck chose Liechtenstein in 2020 to establish the foundation of its first crypto investments, the firm was early. Its crypto team has expanded significantly since then. According to VanEck, this development offers a preview of what fund management may look like in the future. “In the past we have said that within five to ten years, half of our revenue could be blockchain based.”
“Liechtenstein was a few years ahead of the rest of Europe,” said Aaron Renkers, head of investments in Europe at VanEck, explaining the decision. It was one of the few European countries with clear crypto legislation at the time.
The company also found an important partner there: Bank Frick, then one of the first European banks offering crypto services. From Liechtenstein, VanEck launched its first bitcoin ETN that same year.
Different skill set
VanEck’s global crypto team now consists of roughly thirty people, with a small group based in Europe. The European team has launched fourteen crypto products so far. This requires different expertise than traditional ETFs, Renkers said.
First, the products are ETNs, debt notes with a risk profile that differs from ETFs. It is still not legally possible to wrap crypto into a Ucits ETF structure. In equity ETFs, new shares are usually created in cash, after which the asset manager buys the underlying securities.
In crypto ETNs, this creation process is almost entirely in kind. Market makers, who generally have the best access to the fragmented crypto market, deliver the coins directly to VanEck, which then issues the ETNs in return.
Staking and liquidity
A second distinction is staking. By staking coins, VanEck supports blockchain networks and receives rewards for investors. “It is essentially a new concept,” Renkers said. Staked coins are temporarily locked and may take days or even months to become available again. At the same time, VanEck wants to offer clients daily liquidity.
To manage that balance, the firm developed a dynamic risk model based on traditional ETF processes. Among other factors, it monitors the length of the “exit queue,” consisting of investors redeeming their coins. “If that queue becomes too long, liquidity risks increase and we need to reduce our staking. We monitor that very closely,” Renkers said.
Crypto custody introduces unique operational risks. Errors are often irreversible, so crypto portfolio managers work closely with specialized custodians and additional control layers. “The risk is higher than in traditional ETFs,” Renkers said.
In other respects, crypto is operationally simpler than traditional ETF portfolios. Many ETNs consist of a single coin or a small basket instead of hundreds of positions.
Inside the daily workflow
The workday of a crypto portfolio manager begins before market open with a thorough check of all positions and the distribution of an overview of holdings and the intrinsic value per ETN. Market makers use this data to price the notes.
Creation and redemption orders must be submitted before 17:00 hours. ETNs are only created once VanEck has fully received the underlying coins. “We always want to settle last. Thanks to our reputation, we can make that arrangement,” Renkers said.
In traditional ETFs, settlement occurs via delivery versus payment, where cash and securities are exchanged simultaneously. In crypto, this is more complex. “You are working with two worlds: the blockchain universe and the traditional financial infrastructure. They do not always align smoothly,” he said.
Specialized knowledge
VanEck requires crypto portfolio managers to have deep knowledge of blockchain technology and the differences between networks. Staking processes differ significantly between, for example, ethereum and solana. Still, Renkers said talent is not difficult to find. “We are now a well-known name in both crypto and traditional asset management.”
VanEck manages 31 billion dollars in Europe, of which more than 1 billion dollars is invested in crypto products. The crypto team works closely with other investment teams, although it remains a clearly defined group that does not manage ETFs. Knowledge flows both ways, as traditional portfolio managers must also follow developments in crypto markets. Some ETFs invest in listed crypto companies, such as miners and exchanges.
Everything ‘on-chain’
VanEck expects its crypto activities to continue growing. “We believe that eventually almost everything will be on chain, even outside the financial sector,” Renkers said. “What that will mean for us remains to be seen, but we have said before that within five to ten years, half of our revenue could be blockchain based. That includes the ETNs we launch, but also existing strategies that we bring on chain.”
That may eventually include ETFs operating without traditional custodians or clearinghouses. “The technology already exists. Regulators simply need more time to put the rules in place.”