The traditional market has bred many different forms of investment, including ETFs (exchange-traded funds) and ETNs (exchange-traded notes). These forms of investment are already entering the cryptocurrency market, so it’s worth knowing what they are and how they are traded both on traditional and cryptocurrency markets. So, what does ETN mean?

What is an ETN?

Let’s take a closer look at the definition of exchange-traded notes. They are a variation of ETFs. Simply put, an ETN is a type of unsecured debt security usually issued by a bank and traded on exchanges like stocks. Unsecured means that that there’s no backing of equal value collateral, and therefore unsecured securities like ETN have higher risks. ETNs track an underlying asset of securities and are pretty similar to bonds except for one thing — they have no periodic interest payments.

ETN investment can take the following forms:

  • Investors can trade ETNs on exchanges and earn money based on the difference between buy and sell
  • Investors can wait for the ETN to mature and get a return on the index it tracks based on the performance of the underlying asset minus fees. In other words, upon maturity of the ETN, the ETN-issuing entity promises to pay the amount reflected on the index after taking their fee.

It’s worth mentioning that ETNs don’t actually own any of the underlying assets behind the indices that they are designed to track. So, a Bitcoin ETN is a debt instrument that monitors the Bitcoin price.

This differs from an ETF that consists of an actual security or, sometimes, a commodity or currency derivative, such as futures, forwards, and options.


ETF is another investment vehicle, standing for “exchange-traded fund.” ETFs are considered an alternative between mutual funds and stocks and are a security. In other words, an ETF represents an asset or a basket of assets, whether gold, oil, or other commodities or shares, and its ownership is divided into shares that are traded on exchanges. ETFs are used to track the movement of a given asset or several assets, and the entity that issues ETF actually does own the underlying asset.

The key difference between ETNs and ETFs is that ETNs do not provide investors with ownership of the securities but merely pay the return that the index produces. Still, both instruments let investors earn on the price movements of the underlying index.

Character traits Stock Bond
Option to buy or sell underlying index Yes No
Investor risk Market risk Market risk
Issuer risk
Tracking error Larger Smaller
Payout Quarterly distribution Quarterly coupon

Tracking errors occur when the ETN and the underlying asset don’t correlate well, which can be the result of credit issues.

Types of ETNs

According to Barclays Bank PLC, a major ETN provider, there are key major types of ETNs:

  • commodity ETNs (energy, oil, or metals)
  • currency ETNs (euro, British pound, Japanese yen)
  • emerging market ETNs (the India Index ETN)
  • strategy ETNs (S&P 500 BuyWrite Index).

Banks and other financial institutions usually issue ETNs at $50 per share. It’s worth mentioning that both ETFs and ETNs offer a tax advantage. Any returns on the purchase or sale of the instrument are not realized until the actual closing transaction, which is when capital gain taxes occur.

A closer look at ETN risks

While both ETNs and ETFs have certain risks, the risks differ. When it comes to ETNs, their biggest point of failure is credit risk. While an issuing bank like Barclays has a high Standard & Poor’s credit rating, which means its ETNs are pretty reliable, some other issuers may not boast the same level of reliability. So, if something happens to the issuing bank, their ETNs can default.

Another risk associated with ETNs is liquidity risk. ETFs are far more popular than ETNs in the world of finances and are widely traded on exchanges. Trading ETN contracts is not that popular, which means that trading in and out of ETN positions may not be as easy due to the low liquidity level.

So, before investing in any ETN conduct, due diligence and a thorough analysis of the issuing bank is in order. Pay special attention to how ETNs react to different market conditions; understand what is in each note, especially if they are reversed or leveraged; and pay attention to the trading volumes, liquidity, and exchanges where you can access a certain note. If you have any questions, consult a financial advisor.

Understanding Bitcoin ETNs

Interestingly enough, Bitcoin ETNs pioneered on exchanges before Bitcoin ETFs. The only available Bitcoin ETN is Bitcoin Tracker One. It has the ticker CXBTF and is listed on NASDAQ/OMX in Stockholm. The situation for ETFs is not that good: The U.S. Securities and Exchange Commission has rejected many Bitcoin ETFs, starting with the first attempt by the Winklevoss twins in March 2017. So far, no ETF has been approved.

Both Bitcoin ETFs and ETNs are designed to track Bitcoin price movements. They have lower expense ratios compared to mutual funds and are traded on exchanges just like stocks. The differences between Bitcoin ETFs and ETNs include those described above but are not limited to those alone. Interestingly, Bitcoin ETFs target institutions and larger Bitcoin investors than ETNs, which target retail investors.

Bitcoin Tracker One ETNs

Bitcoin Tracker One is the first-listed Bitcoin-based security to operate on a regulated exchange. The ETN was launched in 2015 on a Swedish-based NASDAQ/QMX exchange. The platform classifies the ETN as a non-equity-linked “tracker-certificate.” Basically, it is a security that tracks the performance of Bitcoin and can be traded on exchanges like a share.

Bitcoin Tracker One ETNs

Bitcoin Tracker One offers investors exposure to the performance of BTC by tracking the price of BTC/USD minus a fee. The product tries to offer a daily return that is approximately equal to the performance of BTC on a few highly liquid exchanges as selected by the ETN provider before taking into account fees and costs.

Simply put, if the price of BTC moves up or down 5%, the price of the ETN should also move by the same percentage. The ETN has the approval of the Swedish FSA.

The biggest risk associated with the Bitcoin Tracker One ETN is forex risk. Even though it’s now possible for investors to purchase these ETNs using dollars, and even though the orders are executed in dollars, they are still cleared and settled in Swedish crowns (SEK). This means any fluctuation in the USD-SEK rate will have an impact on the net returns.

There is also credit risk linked to the financial position of the institution offering the ETN and counterparty risk in the case of the issuer defaulting.

Investors interested in the Bitcoin Tracker One ETN can purchase shares using the CXBTF ticker symbol through a Nasdaq brokerage account. Whenever an investor buys shares of the ETN, they pay money and get an equivalent stake in BTC minus the fees charged.