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Crypto Could Join €12 Trillion Investment Market if EU Goes Ahead with UCITS Proposals

Last Updated May 9, 2024 2:54 PM
Eddie Mitchell
Last Updated May 9, 2024 2:54 PM
Key Takeaways
  • The EU is seeking feedback on a decades-old frameworks that could see crypto included under a mutual fund framework.
  • Western Europe is a major crypto trading region with 1.5 million daily active crypto users.
  • Europe is the second-largest crypto trading region in the world.

The European Union’s securities authority could be mulling the prospect of introducing crypto assets into its $ 12 trillion mutual fund framework, the Undertakings for Collective Investment in Transferable Securities (UCITS).

This bodes well for pro-crypto investors as UCITS are the EUs primary retail investment product, accounting for 75% of all collective investments by retail investors. The introduction of crypto into this framework could be even more impactful than U.S. Bitcoin (BTC) exchange-traded funds (ETFs).

Old Rules, New World

The ESMA is calling  for feedback on the Eligible Assets Directive (EAD), which specifies the scope of UCITS-eligible assets.

The EAD has been in force since March 2007 and they have remained largely unchanged since. Seemingly, the evolution and growth of financial markets and instruments over this time has prompted a long-overdue revision of these rules.

As per the ESMA , this change is:

“[…] leading to uncertainty in determining whether some categories of assets are eligible for investment, in turn giving rise to divergent interpretations and market practices in terms of the application of the UCITS Directive.”

The review comes in timely fashion as the EU’s Markets in Crypto Assets (MiCA) regulations come into force throughout 2024. Furthermore, Bitcoin (BTC) and Ethereum (ETH) ETFs are gaining traction around the world, marking a major shift in crypto market dynamics.

There are potential benefits, but plenty of roadblocks that cold stifle crypto’s ambitions. A notable challenge will be surrounding custody, as regulations for bank deposits would need to be reworked to include the custody of crypto assets.

However, MiCA regulations will include rules for custodians concerning the safekeeping and segregation of crypto assets, which could fill this gap. CCN contacted the ESMA for additional context, but they did not immediately respond.

Europe’s Crypto Activity

According to a report  from Bitget Research, Europe is a major crypto trading hub with between 1.2 and 1.5 million daily active crypto traders.

This is seemingly on the increase, with influential EU member states such as Germany and France leading these activity levels, as well as Austria experiencing a 70% surge in crypto users.

According to CME Group, Europe is the second-largest  cryptocurrency economy in the world, accounting for almost a fifth of global transaction volumes, indicative of just how substantial it would be if crypto was included in the EU’s gigantic mutual fund framework.

A Game Changer?

Hypothetically, crypto UCITS funds could include multiple cryptocurrencies without requiring separate authorization.

This is different from U.S. spot BTC/ETH ETFs, which are based on a single asset and require regulatory authorization.

Considering that U.S. crypto ETFs issued by the likes of BlackRock and Grayscale can influence the cryptocurrency markets and attract some $18 billion since the start of 2024, crypto’s entry into a $12 trillion market could be explosive.

The ESMA will be accepting feedback until August 7th, 2024, with the ESMA to deliver its advice by October 31st, 2024, meaning we may not see a result until next year.

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