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Crypto ETPs Land in London — But Only for the Pros

Last Updated March 19, 2024 1:42 PM
Teuta Franjkovic
Last Updated March 19, 2024 1:42 PM
By Teuta Franjkovic
Verified by Peter Henn

Key Takeaways

  • The UK will allow crypto ETP listings, but only for institutions.
  • Retail investors are left out, and the industry is now calling for wider access.
  • Large crypto asset managers still want to list their products in the UK because of the LSE’s reach.

There is an expectation for a surge in cryptocurrency exchange-traded products (ETPs) listed in London. This follows a shift in UK  regulators’ previously stringent stance against providing domestic access to funds including cryptocurrency exposure.

Nevertheless, the decision  by the Financial Conduct Authority (FCA) to restrict access to these products exclusively to “professional investors” while maintaining a prohibition for retail investors on purchasing cryptocurrency ETPs has faced criticism from within the industry.

FCA Relaxes Crypto ETP Ban, Limits Access to Institutional Investors

Last week, the FCA announced  it would not oppose requests from exchanges like the London Stock Exchange and Cboe UK  to introduce unleveraged crypto-backed exchange traded notes (ETNs) associated with Bitcoin or Ethereum. However, the FCA specified these financial instruments should be exclusively accessible to institutional entities. These include investment firms, credit institutions, pension funds, and insurance companies.

This development marks a departure from the FCA’s comprehensive prohibition  on cryptocurrency ETPs. In turn, it aligns the UK slightly more closely with continental Europe, Australia, Brazil, Canada, and the US, where crypto ETPs are already available. Despite this, the UK’s stance remains conservative compared to the broader global trend of allowing individual investors to engage with crypto ETPs.

US Bitcoin ETFs Boom, Lures Crypto Giants to UK Market

Since their introduction in January, US-based spot Bitcoin exchange-traded funds (ETFs) have accumulated $31 billion. This propelled BTC to a record peak of $73,000, though it later fell.

Notwithstanding the UK’s cautious stance , it is anticipated that several established cryptocurrency entities will enter the market.

Bradley Duke, chief strategist of ETC Group, which runs Europe’s largest crypto fund, the $1.6bn ETC Group Physical Bitcoin commented :

“The LSE is such an important market for us. We will definitely list products when possible, and preparation is under way. We hope the retail ban will be lifted soon after.”

Townsend Lansing, head of product at CoinShares, which operates the next four largest crypto ETPs, expressed enthusiasm  about discussing new listing opportunities with the London Stock Exchange (LSE) to understand their requirements and how CoinShares’ products could align.

WisdomTree, with over $800 million invested in its eight European crypto ETPs, mentioned  that the LSE would offer a more accessible entry point for UK-based professional investors interested in crypto ETPs compared to foreign exchanges. The company is also in talks with the FCA and LSE to delve deeper into this opportunity.

UK Crypto ETPs: A Qualified Welcome, But Access Too Tight for Some

The UK’s approach may not entice every issuer active in the European crypto ETP market, which features 100 products with a total asset value of $14.2 billion.

The UK regulator recently reiterated its position. It said crypto ETNs and crypto derivatives were not suitable for retail consumers due to the risks involved. The FCA highlighted that crypto assets were high risk and mostly unregulated, also warning investors to be ready for the possibility of losing all their money.

Nonetheless, UK retail investors can purchase cryptocurrencies directly on exchanges. This requires the additional management of digital wallets and private keys and carries the inherent risk of theft.

Hector McNeil, co-founder and co-CEO of HANetf, a London-based firm that lists six ETC Group crypto products on its ETF platform, welcomed the FCA’s recent declaration . He said it was a positive development, indicating that the UK is beginning to align with other European countries.

However, McNeil pointed out that, with access limited to professional investors, entry requirements remain overly stringent. He suggested the approach to access should mirror the UK’s policy  for complex financial instruments, like leveraged ETFs. In this model, brokers serve as intermediaries, ensuring only retail clients who understand and can bear the risks associated with the asset class can invest.

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