Rising crypto star faces SEC, volatile markets

Ophelia Snyder, a former documentary filmmaker, is teaming up with another crypto apostle, Cathie Wood, to launch a Bitcoin ETF in the U.S. but standing between them and the Bitcoin ETF they want to launch is the SEC, which is wary of making it easy to invest in crypto.

Snyder spent her early twenties making marine biology documentaries for the Discovery Channel. Now, at 29, she’s managing $2.5 billion in a risky and volatile corner of finance.

Snyder has even opened a New York office in the hopes of expanding in the U.S.

Snyder’s firm, 21Shares, is based in Zug — known as Switzerland's Crypto Valley — and offers European investors exchange-traded funds based on Bitcoin as well as tokens familiar only to the crypto cognoscenti, like Polkadot and Avalanche.

Her premise is simple — cryptocurrency investing is sweeping the globe, yet buying and selling the coins can be a perplexing process for retail investors in the U.S., where for almost a decade, regulators have refused to allow the sale of crypto-based funds.

She is having to confront several headwinds. Wood, a mentor to Snyder, is having a miserable start to 2022 as tech stocks sink and investors pull money from her flagship fund. And just in the past week crypto assets plunged as the Federal Reserve signaled interest rate hikes are ahead. The Securities and Exchange Commission, meanwhile, doesn’t seem inclined to greenlight crypto ETFs anytime soon.

Snyder is undeterred. “We really want to make people feel confident when they enter the space,” she said. “That’s the whole game for us — lowering the barriers to entry and making people feel excited about what we feel is revolutionary technology.”

She also co-founded a sister company, Amun Ltd., which provides tokens and indexes for more sophisticated investors. In three years, the assets that Amun and 21Shares manage have grown to $2.5 billion and the number of employees to about 100.

Early backers include Australia’s Graham Tuckwell, chairman of ETFS Capital and an ETF pioneer, Adam Draper, founder of Boost VC Accelerator and son of legendary venture capitalist Tim Draper, and Ark Investment Management’s Wood.

After meeting at a conference, Wood and Snyder bonded over their mutual interest in crypto. Wood sits on the board of Amun and has personally invested in the company.

The SEC's reluctance isn’t just because most crypto coins have roller-coaster price changes. It’s also because they are prone to frequent technology glitches, are vulnerable to manipulation and are often used in criminal activities, all of which make crypto-based funds potentially perilous to the retail investors the SEC is supposed to protect.

The risks “are elevated relative to traditional equity or fixed income products, so it’s easy to see how investors could lose money faster,” said Todd Rosenbluth, head of ETF and mutual fund research at CFRA Research.

Despite occasional selloffs like the one that drove crypto prices down last week — they’ve since recovered somewhat — the cryptoverse exploded in 2021. The market value of some 12,000 tokens tracked by CoinGecko climbed by $1.5 trillion to about $2.3 trillion last year. The 21Shares website prominently states that, since the beginning of 2021, “Bitcoin is up 27.78%, Ethereum is up 232.78%, and the S&P 500 index is up 18.32%.” 

Such numbers have upstart companies and traditional Wall Street firms scrambling to create new products that will lure even more investors into the Wild West of crypto.

21Shares tries to minimize some of the risks by purchasing the actual coins that underlie its funds and storing them in an offline wallet, known as cold storage. That increases the cost of managing a fund, leading to steep annual fees that eat into returns. At 21Shares, those range between 1.49% and 2.5% — or between $14.90 and $25 for every $1,000 invested — far higher than the 0.5% average fee of passively managed stock ETFs.

That such instruments can legally exist is due to the crypto-friendly regulatory environment in Switzerland, and especially the city of Zug, where 21Shares is based. The enclave, known as Crypto Valley, is home to hedge funds, commodity traders and now crypto companies, thanks to its low corporate taxes and favorable attitude toward blockchain technology. The city even allows citizens to pay taxes in Bitcoin and Ether.

After getting a degree from Stanford University in earth systems, Snyder started out working in science labs, then made marine biology documentaries for the Discovery Channel. She was more interested in finance, she said, because it’s “at the heart of how we can change the world for better,” whether that’s climate change, women’s rights or education. So, she switched to venture capital and then to asset management, which led her into crypto.

Snyder, an Italian American, was raised between homes in New York and Rome. She spent much of her childhood surrounded by different cultures, thanks to her family’s travels and her time at Choate Rosemary Hall, a boarding school in Connecticut filled with students from foreign countries.

Her mother is an artist and photographer, while her father worked in the family business, Biocraft Laboratories Inc., a pioneering generic drug maker founded by her grandfather and sold to Teva Pharmaceutical Industries in 1996 for $296 million.

Snyder started both Amun and 21Shares with Hany Rashwan, an Egyptian-American entrepreneur. The two met in San Francisco when she was an undergrad and he was starting companies that focused on e-commerce and digital payments.

She and Rashwan realized their financially savvy mothers had trouble buying crypto, and wanted to make it easier for them.

In 2018, the two formed Amun — named after an Egyptian god — that initially packaged Bitcoin, Ethereum and other popular coins into a single fund that investors could track, listing it on the SIX Swiss Exchange in Zurich. Other baskets that tracked the performance of newer coins quickly followed.

They soon spun off a line of ETFs under the name 21Shares, a nod to the 21-million cap on the supply of Bitcoin. 21Shares now offers 23 crypto ETFs on 10 European exchanges.

Snyder said she will launch a fund around a new coin if clients request it or if in-house analysts think it shows promise. Yet newer coins are prone to even sharper price swings than Bitcoin — which has lost almost half its value since hitting a record high in November. For instance, a coin called AVAX — the token of the Avalanche blockchain project — rose 70% from the beginning of November to the middle of the month, before falling almost 50% by mid-January.

The 21Shares funds that aim to track the price of tokens on blockchains like Ripple and Cardano have lower liquidity and a smaller market cap than more established coins like Ethereum and Bitcoin, said Nate Geraci, president of the ETF Store, an investment adviser. That makes them harder to track, which compounds their risk.

Snyder acknowledged that investors in her products could lose money, but said the firm tries “very hard to make sure people understand these nuances and how early this market is. This is closer to venture capital than to equities markets.”

While SEC Chair Gary Gensler remains skeptical of such funds, his agency has approved Bitcoin futures ETFs, which indirectly track the token’s spot price with contracts governed by the Chicago Mercantile Exchange.

But to Snyder, futures ETFs are inefficient, requiring an active fund manager to roll contracts forward each month. The costs to do that are passed on to investors. “The futures products are much more financially complex outside of the Bitcoin exposure,” she said. “My worst nightmare is people start buying these products not understanding these nuances.”

She and Wood initially aimed to launch a Bitcoin futures ETF but then pulled their application in December due to such concerns.

While seasoned crypto investors can purchase tokens on exchanges like Binance without the steep fees that 21Shares charges, newcomers often find the process, which requires opening an account on what may be an unfamiliar platform, onerous.

One of the big arguments behind the push for regulatory approval of funds tracking Bitcoin directly, known as spot Bitcoin ETFs, is that a crypto ETF can sit alongside other mutual fund holdings in a traditional brokerage or retirement account.

Snyder said she has “an enormous amount” of her own money in crypto, including her companies’ products. On a percentage basis, it’s far more than she would recommend her clients put into crypto. “This is my life,” she said. “This is the thing I think is going to change the entire world.”