Crypto ETPs poised for UK debut

Mar 12th, 2024 | By | Category: Alternatives / Multi-Asset

The UK’s Financial Conduct Authority (FCA) has announced its willingness to permit the creation of certain crypto-backed ETPs for professional investors.

Crypto ETPs poised for UK debut

Crypto-linked ETNs are poised to make their debut on the London Stock Exchange in Q2.

Starting in April, prospective issuers can apply to list non-leveraged exchange-traded notes (ETNs) linked to Bitcoin and Ethereum, the world’s two largest crypto assets, on the London Stock Exchange.

ETNs are debt securities that track an underlying asset and are traded and settled through central market entities like stock exchanges and securities depositories.

The FCA emphasized that eligible crypto ETNs must be fully backed by either Bitcoin or Ethereum, and the underlying crypto holdings are required to be kept in cold storage by custodians subject to anti-money laundering rules.

The shift in regulatory stance will be welcomed by the crypto industry which has been vocal in its criticism of the FCA in the past, arguing that regulated and accessible routes into popular tokens like Bitcoin and Ethereum are essential for the UK to become a leading market for digital assets.

It’s important to note, however, that retail investors will still be restricted from purchasing crypto-related ETPs in the UK, placing the country behind several major European markets where retail access to such ETPs is permitted.

Tim Bevan, CEO of ETC Group, a leading provider of crypto ETPs in Europe, commented: “Whilst we welcome the FCA allowing London Stock Exchange to set up a new segment for crypto ETPs, it is disappointing that retail investors are still precluded from participation in securities traded on regulated markets issued through an authorized prospectus when no such restriction applies to opening a direct crypto account.

“If UK regulations permitted retail investors to invest in crypto ETPs, via regulated markets, this would bring the UK in line with much of Europe and allow those retail investors to take advantage of the built-in security that established exchanges provide. It would also help advance the claim of the UK to be a global leader in fintech.”

The UK is the latest in a burgeoning list of markets that are adopting more accommodative regulatory stances toward crypto-related products. This shift highlights the growing legitimacy of the sector, coinciding with a rising demand from investors eager to explore opportunities within the cryptocurrency space.

These regulatory developments have also injected renewed vigor into the crypto sector, with the price of Bitcoin soaring by approximately 330% since the beginning of 2023. The approval of spot bitcoin ETFs in the US this year has particularly catalyzed the momentum, propelling Bitcoin’s price to surpass $71,000 this week, marking a historic high.

Additionally, Bitcoin is on the brink of its next “halving,” a rare technical event that occurs roughly every four years. This impending halving, scheduled to take place in about five weeks, will further diminish the supply of new bitcoins entering circulation. Historically, Bitcoin’s price has surged in the lead-up to and aftermath of its halving events.

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