Crypto structured products: an option payoff in a sellable security
A crypto structured product is a security whose payout follows a formula on a crypto-asset price, built so a bank or wealth manager can sell it from an existing securities account. The investor holds a note or certificate, no wallet and no coin, and the payoff shape decides what the position does in a drawdown.
For a private bank the attraction is the shape, not the asset. A client who will not accept the full drawdown of bitcoin can take a defined slice of it, and the price of that definition is the issuer's credit standing behind the paper. Demand for these products has pulled private banks and external asset managers into the asset class, as Marex reports from its own order flow.
The common payoffs
Three shapes cover most of what is sold, and each one trades a different thing away.
A tracker certificate pays the price move one for one, minus a fee. It does what a crypto ETP does, in a note format, and it makes sense mainly where a mandate accepts a bank note but not an exchange-traded product.
A capital protection note returns the invested amount at maturity and pays a share of the upside. The protection is funded by giving up part of the gain and by locking the money until maturity. The protection is a promise of the issuer, not a deposit guarantee.
A reverse convertible pays a high fixed coupon and repays the capital only if the price stays above a barrier. Below the barrier the investor is repaid in the fallen asset or its cash value. The coupon looks like a bond yield and behaves like the premium on a sold put, because that is exactly what it is.
Autocallables and the yield the volatility pays for
The autocallable is the shape that sells best, and the reason is arithmetic. It pays a coupon on each observation date as long as the underlying stays above a level, and it redeems early, taking the investor out with the coupons earned, once the price crosses an upper trigger. The investor is selling the market a piece of optionality and being paid a coupon for it.
Crypto underlyings carry implied volatility several times that of an equity index, and an option premium rises with volatility, so the same structure on bitcoin prints a far higher coupon than one on a stock basket. Zerocap describes that volatility gap as the source of the yields in this product class. The coupon is not a free yield: it is the price of the downside the investor agreed to absorb, and a sharp fall turns the high coupon into a capital loss.
Hedging a holding you already own
Not every buyer wants exposure. A miner with coins on the balance sheet, a treasury company holding bitcoin as its main asset and a fund with a crypto sleeve all have the opposite problem: they hold the risk and want less of it without selling.
The structure for that sells upside to pay for downside. A collar gives up the gain above one level to fund protection below another, at little or no cash cost, and the holder keeps the coins and the balance sheet position. A covered call goes further and converts part of the expected price gain into a cash coupon, which suits a treasury that has to show income. Marex lists portfolio hedging among the main uses its clients bring to this desk, next to the exposure trades.
The option inside, and who hedges it
Open any one of these and the parts are the same: a zero-coupon bond of the issuer plus one or more options. The bond carries the repayment, the options carry the shape. A capital protection note holds a bond worth the full redemption at maturity and spends the remaining cash on calls. A reverse convertible holds a bond and sells a put, and the premium from that put is the coupon.
The bank does not keep the option risk. Its trading desk hedges in the crypto derivatives market, buying and selling the underlying as the delta changes. That is why the product range follows the options market: a payoff only reaches a term sheet when the desk can hedge it at a price, which is why long-dated and exotic shapes stay rare on crypto underlyings while they are routine on equity indices.
Issuer credit risk, and what happened to holders before
The investor is an unsecured creditor of the issuer. Every payoff described above assumes the issuer is there to pay it, and if the issuer fails the formula is worthless no matter where the crypto price went.
German investors learned this from Lehman Brothers certificates in 2008, where holders of capital-protected notes queued as insolvency creditors and the protection paid nothing. The same structure carries the same risk today, which is why a term sheet names the issuer and its rating before it names the underlying, and why some crypto notes are issued with collateral pledged to the holders to shorten that exposure.
The PRIIPs key information document
Any of these products sold to a retail investor in the EU comes with a key information document of at most three pages, and that document is where the numbers the sales conversation skips are written down. The PRIIPs Regulation prescribes the content, and the European Securities and Markets Authority publishes the technical standards behind it.
Read three sections before anything else. The risk indicator puts the product on a scale from 1 to 7, and a crypto underlying lands at the top of it. The performance scenarios show an unfavorable, moderate, favorable and stress case, and the stress case is the one that matters. The cost table gives the reduction in yield per year, which is how the embedded cost becomes comparable with a fund's ongoing charge.
Where the cost sits
These products carry no visible commission, and the cost is inside the price instead. The issue price includes a structuring margin, the distributor's placement fee and the hedging spread on the options, so the note is worth less than its issue price on the first day of trading.
Two numbers let you see it. The reduction in yield in the key information document gives the annual cost of holding the product. The bid-ask spread the issuer quotes in the secondary market gives the cost of leaving early, and on a crypto underlying that spread is wider than on an equity one because the hedge is more expensive to unwind.
When does a bank offer this instead of direct exposure?
A bank reaches for a structured note when the client's mandate or the client's risk appetite rules out holding the coin. A portfolio that may hold securities but not crypto-assets can often hold a note, since the note is a debt security in the custody account. A client who wants a defined maximum loss gets it from the structure and could not get it from a direct holding.
The bank also avoids a custody build. No wallet, no key ceremony and no crypto custody license is needed to book a note, which is why structured products often arrive at a private bank before a custody offering does. Crypto wealth management sets out the choice in full.
Who buys crypto structured products?
Four groups, and they want different things from the same term sheet. A private client new to the asset class buys the defined loss, since the structure answers the question that stops the conversation about holding coins directly. An institutional allocator, such as a family office or a fund, buys the wrapper, because a note fits an investment policy that has no line for a crypto-asset.
A private bank or external asset manager buys the product to have something to sell at all, which is the demand that pushed these desks to build crypto shelves. Holders with coins already, including miners and corporate treasuries, buy the hedging shapes described above. In every one of the four cases the client is a professional or a high net worth investor, since the complexity and the risk indicator keep these products away from a mass-market shelf.
Are crypto structured products regulated under MiCA?
No. A structured note is a transferable security, so it falls under MiFID II and the Prospectus Regulation, and MiCA leaves financial instruments out of its scope. The practical effect is that the bank's existing securities machinery applies: prospectus or base prospectus, product governance, suitability on advice and the PRIIPs document for retail clients. A CASP license is not what the issuer needs.
Crypto structured products and Finance Loop
Finance Loop is the meeting place for the structuring desks, private bankers and product lawyers who decide whether a crypto payoff reaches a client portfolio in Germany. Finance Loop members work on the hedging side of these notes and on the distribution side, where the suitability question is answered.
Finance Loop is a professional network and has the goal of driving the adoption of emerging technologies in finance, such as AI, tokenization, stablecoins, and DeFi. Finance Loop helps its members build skills and personal networks in these fields: Investment & Digital Assets, Payments & Digital Money, Digital Infrastructure & Sovereignty, and Risk & Compliance.