The Rise of Structured Crypto Products: Insights from Zerocap

Australia-based digital asset firm Zerocap is strategically positioned to witness the evolution of the structured product landscape. Since its inception in 2018, Zerocap has been at the forefront of the digital asset industry, operating in various sectors including OTC trading, market making, derivatives, and crypto custody. In this article, we delve into the insights shared by Zerocap’s head of sales, Mark Hiriart, regarding the transformation of structured products, the launch of a new semi-principal protected product, geographical demand variations, and the most unusual structured product request he has encountered.

Understanding Zerocap’s Role in the Crypto Market

Zerocap has established itself as Australia’s leading institutional digital assets firm, offering a diverse range of services. The firm operates multiple business lines, including an OTC desk, market making, and derivatives trading, all supported by a robust custody offering. As a Corporate Authorised Representative of an Australian Financial Services License (AFSL) holder, Zerocap is authorized to trade financial products like derivatives with wholesale accredited investors.

Over the past 18 months, Zerocap has emerged as a key liquidity player in Australia, extending its reach to clients across more than 50 countries. The firm has also forged high-profile partnerships with notable institutions, such as ANZ Bank for their stablecoin initiatives and the Reserve Bank of Australia (RBA) for various proof of concepts and pilot projects.

Introducing the Semi-Principal Protected Product

Recently, Zerocap partnered with CoinDesk Indices to launch a new semi-principal protected structured product. This innovative offering provides investors with upside exposure to the CoinDesk 20 Index (CD20), while simultaneously limiting downside risk to 5%. The product is designed to offer potential returns of up to 40% on the upside, making it an attractive option for investors looking to navigate the current market landscape.

This launch marks the beginning of a series of structured products that Zerocap plans to create in collaboration with CoinDesk Indices, each featuring different payoffs tailored to various risk appetites. The timing of this product introduction is particularly relevant, given the prevailing market sentiment surrounding digital assets.

Market Sentiment and Future Outlook

As the digital asset market experiences fluctuations influenced by various factors, including political events and global trade dynamics, Zerocap anticipates a period of sideways action in the near term. The medium-risk exposure offered by the new product aligns well with the current macroeconomic environment, providing investors with a balanced approach to entering the crypto space.

The Need for Index Products in Crypto

In the realm of digital assets, the absence of established benchmarks akin to those in traditional markets has historically posed challenges for investors. For instance, Australian investors or those in Hong Kong seeking exposure to U.S. tech stocks typically turn to products linked to the NASDAQ or QQQ ETF. However, the crypto market has yet to achieve a similar level of indexization.

The newly launched product is specifically designed for three primary groups of investors: family offices and high-net-worth individuals looking to enter the crypto space; investors seeking broad-based crypto exposure without the need to delve into individual assets; and those who have a foundational understanding of Bitcoin but desire diversified exposure with managed risk.

Why the CoinDesk 20 Index?

Mark Hiriart outlines four key reasons for selecting the CoinDesk 20 Index as the basis for this structured product:

1. Reputation and Quality: Zerocap holds a deep respect for the CoinDesk brand and the quality of their index team.
2. Access to Futures Contracts: The strong relationship with Bullish enables Zerocap to access futures contracts for effective hedging.
3. Market Demand: There is a clear market need for index products within the crypto space, providing investors with structured options.
4. Expertise in Equity Derivatives: Hiriart’s background in equity derivatives at investment banks has equipped him with insights into how investors utilize structured products, making this a natural evolution for the crypto market.

Challenges in Structured Product Adoption

Historically, two main factors have limited the adoption of structured products in the crypto market:

1. High Volatility: The inherent volatility of cryptocurrencies has meant that simple spot positions could yield significant returns, reducing the appeal of structured products.
2. Prevalence of Perpetual Futures: The widespread use of perpetual futures with high leverage has diminished demand for options markets, further complicating the landscape for structured products.

However, as the market matures and investors seek more sophisticated strategies, the balance is shifting. The demand for structured products is expected to grow as investors become more aware of the benefits they offer in terms of risk management and potential returns.

Conclusion: The Future of Structured Crypto Products

As Zerocap continues to innovate and adapt to the evolving landscape of digital assets, the introduction of structured products represents a significant step forward. With a focus on providing investors with tailored solutions that meet their unique needs, Zerocap is poised to play a pivotal role in shaping the future of structured crypto products.

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