In this Eqonomics, we will showcase a simple and popular product linked to the price of BTC: The Reverse Convertible.
A structured product is a pre-packaged investment with a defined risk-return profile and is linked to an underlying asset’s performance. Unlike buying a stock, bond, or individual crypto, structured products have a fixed maturity, and they may also include an early conditional redemption.
Structured products can provide exposure to crypto in a more accessible format, such as a fund or a note bought and settled in USD. Investors can obtain exposure to Bitcoin performance without having to own or store any.
Designed for yield, a Reverse Convertible offers investors an attractive fixed coupon. Although capital is at risk, a Reverse Convertible provides limited mitigation to adverse BTC performance.
The redemption of capital at maturity is dependent on the BTC/USD price, and clients will suffer a loss if the price at maturity is below a pre-determined level.
Maturity: 30 September 2022
Coupon: 10% (20% p.a.)
Strike: $40,000 (80% of initial level)
BTC/USD Price: $50,000
Investors purchase the product for $100 at inception.
At maturity, there are two outcomes:
In all cases, a coupon of $10 is paid.
Downside protection is provided for up to a -20% move in BTC/USD price at maturity.
Pricing is indicative only and not a solicitation of investment.
The product’s risk/reward profile follows the logic of an investor selling a put option.
As for all investments: the higher the perceived risk, the higher the potential reward.
Structured products are historically a favorite of private banking clients as they receive yield for a recognized risk.
The products are customizable to match an investor’s risk/reward tolerance and can provide single exposure to more complex trades. They can also be structured to act as a hedge or replace traditional cash/fixed-income investments.
If you are interested in learning more about structured products at EQONEX, please get in touch.
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