The UK’s late entry into the cryptocurrency ETN space contrasts with other jurisdictions in the European market and elsewhere where such products have been available for several years.
The London Stock Exchange made headlines on May 28 with the introduction of cryptocurrency exchange-traded notes (ETNs), prompted by recent regulatory changes in the UK. The Financial Conduct Authority (FCA) recently opened the door to Bitcoin and Ethereum-based ETNs, signaling a major shift in the regulatory landscape.
Despite high expectations surrounding the launch, transaction activity was sluggish. Charlie Morris, head of ByteTree, tweeted that only 200 shares of 21Shares were traded, indicating a lack of enthusiasm in the market. The disappointing start has raised concerns that the UK, one of the world’s largest capital markets, may lag other markets in adopting cryptocurrency ETNs.
FCA policy changes
ETNs are debt securities traded on stock exchanges designed to reflect the performance of specific assets. The ETN, newly approved in London, is linked to Bitcoin and Ethereum, the two major FCA-approved cryptocurrencies.
The FCA previously warned about the volatility of cryptocurrency assets. However, in a policy reversal in March, regulators announced they would no longer oppose requests to list cryptocurrency-backed ETNs. These changes paved the way for the approval of ETFs from 21Shares, Invesco and WisdomTree and marked a significant shift in the UK’s regulatory stance.
The UK’s late entry into the cryptocurrency ETN space contrasts with other jurisdictions in the European market and elsewhere where such products have been available for several years. Initially permitted to retail investors, access to these financial products in the UK was abruptly halted by the FCA in 2020, excluding both retail and professional investors.
The ban, aimed at curbing perceived risks, came as the price of Bitcoin fell below $15,000, a fraction of its current value. Since then, the cryptocurrency market has experienced a huge rebound and investor interest has surged.
Retail exclusion raises questions
Despite expectations that cryptocurrency ETNs would once again hit the London Stock Exchange, restrictions limiting access to regulated financial investors have left retail traders on the sidelines. New FCA rules mean these products will only be available to professional investors, unlike in the US where retail traders can access the market.
The fact that individual investors cannot trade these ETNs has sparked speculation about how they will perform in the future. Compared to the US, where products such as BlackRock IBIT have become popular, the introduction of crypto ETNs in the UK has not had the same impact.
While low initial volume has been a cause for concern among experts, there is hope for retail acceptance in the future. Charlie Morris pointed to the unusual nature of the launch, noting that it took place without warning or promotional effort. He suggested this could be a preliminary step before allowing retail investors to participate.
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