Australia-based digital asset firm Zerocap is well-positioned to monitor the evolution of structured products, given its operations in OTC, market making, derivatives, and crypto custody since its inception in 2018.
Mark Hiriart, the head of sales at Zerocap, shares insights on how these products are developing, including a new semi-principal protected product being launched by the firm, the geographical variation in demand for structured products, and the most unusual product request he has encountered.
About Zerocap
Zerocap is Australia’s leading institutional digital asset firm, founded in 2018. Its services include an OTC desk, market making, and derivatives, all supported by a custody offering. Authorized as a Corporate Authorised Representative of an Australian Financial Services License (AFSL) holder, Zerocap facilitates trading in financial products for wholesale accredited investors. Notably, the firm boasts collaborations with major institutions like ANZ Bank for their stablecoin and the Reserve Bank of Australia (RBA) for various projects. Over the past 18 months, Zerocap has established itself as a leading liquidity provider in Australia, servicing clients in over 50 countries.
New Product Announcement
Recently, Zerocap announced a partnership with CoinDesk Indices to launch a semi-principal protected product linked to the CoinDesk 20 Index (CD20). This product provides upside exposure to the CD20 while limiting downside risk to 5%, with a return potential of up to 40%. This offering is the first of its kind in a forthcoming series of structured products designed for various risk appetites.
The timing is noteworthy, as the current market sentiment indicates potential sideways movement due to recent developments, including a rally in digital assets driven by former President Trump and looming global trade challenges. This medium-risk product fits well within the backdrop of today’s macroeconomic environment.
Market Gap and Target Audience
In the digital asset market, a lack of established benchmarks akin to traditional sectors presents challenges. For instance, an Australian or Hong Kong investor typically seeks exposure to U.S. tech through traditional products linked to NASDAQ or QQQ ETF. In contrast, crypto products lack this level of standardization. Zerocap’s new product targets three categories of investors: family offices and high-net-worth individuals entering the market; investors seeking broad crypto exposure without delving into individual assets; and those familiar with bitcoin but aiming for a diversified risk-managed exposure.
Reasons for Choosing CoinDesk 20 Index
The CoinDesk 20 Index was selected based on four crucial factors:
- Trust in Brand - Zerocap values the quality of CoinDesk and its index team.
- Partnership with Bullish - A strong relationship allows access to futures contracts for hedging.
- Market Demand - There is a pressing need for indices in the crypto scene.
- Experience in Equities - Mark Hiriart’s background in equity derivatives informs the relevance of such products in crypto.
Evolution of Structured Products
Two main factors have limited the popularity of structured products: the high volatility of cryptocurrencies and the dominance of perpetual futures with high leverage, which have reduced demand for options. However, a shift is occurring, as more participants require structural positions.
Impact of Crypto ETFs
ETFs act as an introductory point for structured products rather than threatening their market. The emergence of products like the BlackRock ETF has attracted new participants to crypto, who, as they grow comfortable with crypto exposure via ETFs, tend to explore advanced products for better returns or risk management.
Regional Demand Patterns
Asia shows a significant interest in auto-call structures, where investors exchange downside risks for substantial coupons based on bullish price targets. This contrasts with a more conservative approach observed in U.S. and European markets. Zerocap, positioned between these extremes, aims to extend its expertise in structured products into Asia, depending on regulatory frameworks.
Conclusion
The crypto landscape may witness a divergence in asset volatility profiles with continued development. While stablecoins offer stability, bitcoin’s volatility may lessen with greater institutional acceptance, highlighting the demand for tailored portfolio allocations across various crypto assets.
For more information, visit Zerocap.
