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London Stock Exchange Opens Applications for Institutional Bitcoin and Ethereum Products

Last Updated March 26, 2024 11:50 AM
Eddie Mitchell
Last Updated March 26, 2024 11:50 AM
By Eddie Mitchell
Verified by Peter Henn

Key Takeaways

  • The UK’s financial watchdog will “not object” to institutional requests to create crypto-backed exchange-traded notes (ETNs).
  • The London Stock Exchange (LSE) to begin accepting applications for Bitcoin and Ethereum ETNs later in 2024.
  • Numerous other UK crypto regulations and initiatives should come into effect this year.

The UK’s Financial Conduct Authority (FCA) has updated its position  on crypto asset-backed ETNs. The watchdog has now opened up a path for professional and institutional investors to build a dedicated market segment for these products.

Shortly afterwards, the London Stock Exchange (LSE) posted  a notice announcing it would be accepting Bitcoin and Ethereum ETN applications in the second quarter of 2024. Could this help set the stage for the UK to realize its ambitions of becoming a crypto hub?

UK FCA Open to Crypto?

According to an official statement  posted by the FCA on March 11, 2024, the financial regulator will not be rejecting requests from Recognized Investment Exchanges (RIEs) to establish crypto-backed ETNs (cETNs) for professional traders.

According to the FCA, exchanges have to ensure “sufficient controls”. They also have to ensure adequate safeguarding measures are in place so trading can run smoothly, as well as providing the necessary protections for investors.

As for the reason behind the updated position, the FCA writes:

“With increased insight and data due to a longer period of trading history, the FCA believes exchanges and professional investors should now be able to better establish whether cETNs meet their risk appetite.”

The FCA maintained its stance that cryptocurrencies are “high risk and unregulated”. It said that “those who invest should be prepared to lose all their money.”

The FCA highlights that cETN products are “ill-suited for retail consumers” due to their posing risks to investors. Meanwhile, the LSE has already announced open up cENT applications soon.

London Stock Exchange Calling for Crypto

In a March 11, 2024 market notice, the LSE confirmed  that it will be accepting Bitcoin (BTC) and Ethereum (ETH) cETN applications in the second quarter of 2024.

London Stock Exchange announcement
London Stock Exchange prepares for applications.

These latest moves signify a growing appetite for institutional crypto products. It appears as if the approval of US spot Bitcoin exchange-traded funds (ETFs) have catalyzed this move.

An ETN is an investment type that tracks an underlying index or other metric. They differ from exchange-traded funds (ETFs) in a few key areas. The most notable difference that ETFs hold the underlying assets they track. Meanwhile, ETNs are unsecured debt securities that give investors exposure to underlying assets, more like a bond.

Notably, according to the LSE “Crypto ETN Admission Fact Sheet “, proposed cETNs must have non-leveraged physical backing. They also need to have Bitcoin or Ethereum as their underlying cryptoassets.

These assets must be  “wholly or principally” kept in cold storage. Should a cETN issuer intend to use other storage methods, they’ll have to to obtain audit reports and a regulated custodian will need to hold the cETN.

UK Crypto Ambitions

Seemingly, the slow and steady approach may be favorable for the UK crypto ecosystem. This is especially the case as it begins to implement new rules and laws in an attempt to build up the UK’s crypto industry.

The British government is looking to implement crypto reporting frameworks created by the Organization for Economic Cooperation and Development (OECD). Not only that, but it is also pushing to set up legislation around stablecoins and create a central bank digital currency (CBDC). Indeed, it seems as though the government is suddenly rushing to the finish line.

The government has also passed laws that lets authorities seize and destroy crypto assets without needing a criminal conviction. At the time of writing (March 11 2024), it looks like there could be an all-out crypto experiment in the UK. Keep in mind, however, that it hasn’t quite grown as a ‘crypto hub’, despite being one of the major financial centers of the world.

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