British cryptocurrency exchange-traded bonds collateralized by Bitcoin and Ethereum have recorded low trading volumes since their launch on the London Stock Exchange on May 28 with approval from the Financial Conduct Authority, the UK’s financial regulator.
Unlike US exchange-traded funds, only professional investors can trade the product, and opening it up to the retail market would be a “game changer”, according to 21Shares, one of the issuers.
21Shares offers four Bitcoin and four Ethereum cross-listed products in the UK. wisdom tree manage two Bitcoin BTC
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ETN and Invesco also offer two Bitcoin-backed products. To be listed on the LSE, a cryptocurrency ETN must be physically backed, unleveraged, and only exposed to Bitcoin or Ethereum.
Total sales across all products since launch were just $504,880 as of June 6, with WisdomTree accounting for 59% of volume and 21Shares 41%. According to data from 21Shares, Invesco products have had zero trading volume so far. For comparison, spot Bitcoin ETFs in the U.S. recorded $2.5 billion worth of trading volume on Friday alone, according to The Block’s data dashboard.
WisdomTree’s four UK cryptocurrency products have seen comparative trading volumes so far. However, among 21Shares’ products, the Ethereum product was more successful, accounting for 76% of trading volume. Among them, 21Shares’ Ethereum staking ETP had about 57% more trading volume than its core Ethereum product without staking returns.
According to the data provided, in terms of average daily spreads, 21Shares’ products remain the most stringent among the crypto ETNs on the LSE. Spread refers to the average difference between the bid (buy) and sell (ask) prices of an ETN over a trading day. This is an important indicator regarding transaction costs and liquidity of the products offered.
LSE is not the only trading venue
21Shares noted that professional traders typically trade over-the-counter by buying and selling financial instruments directly with other parties, either outside of a formal exchange such as the LSE or through the most liquid exchange.
While the FCA’s opening up the UK market to professional investors is a “big step in the right direction”, it is also a cross-listed product, meaning the financial instrument is listed and traded on multiple exchanges across multiple countries or regions. Alex Pollak, head of 21Shares UK, told The Block that trading volume was “in line with expectations.”
“Professional investors will trade in the most liquid market, which is currently Deutsche Börse Xetra,” Pollak said. Xetra is the reference market for exchange trading of German stocks and European ETPs. 21Shares first began launching crypto ETPs on Xetra. July 2020.
However, the “stamp of approval” from the FCA and LSE means that many Wealth and Private Banking platforms are now actively considering ways in which they could offer or add bitcoin or ether allocations to their professional clients’ portfolios, Pollak added. . “We expect transaction volumes to increase once the platform completes its onboarding process,” he said.
“We still believe that FCA approval for professional investors in the UK is a very important step for the asset class and we look forward to opening up the market for retail in the future. This will be a ‘game-changing’ moment. “Concluded Pollak.
Other cryptocurrency asset managers agree.
“These cross-listings have generated very little initial trading,” Michael Delew, head of capital markets at WisdomTree, said in a statement shared with The Block, which is unexpected considering the product is only available to professional and institutional investors. No, he added.
“UK-based institutional investors have already been able to access physically backed cryptocurrency ETPs on other European exchanges and over-the-counter (OTC) markets, where they have been available since 2019, and have seen healthy daily trading volumes,” Delew said. .
However, echoing Pollak’s sentiments, Delew said this development represents a significant step forward in the legalization and relevance of the asset class for UK investors, with FCA approval enabling greater institutional adoption over time and removing regulatory uncertainty and barriers. I agreed that it could be done.
“The accessibility of a public listing on a regulated market approved by UK regulators, the ease of trading, transparency, and 100% physically backed institutional grade cryptocurrency ETPs are gaining traction by a growing number of investors seeking allocations,” Delew said. said: .
“The numbers are low for a number of reasons,” James Butterfill, head of research at asset manager CoinShares, told The Block. “Firstly, the ticket size (minimum investment amount) is high to deter retail investors. As a result, UK-listed products are missing out on a huge opportunity, but this is a rule set by the FCA, which believes retailers are not sophisticated enough to invest.”
“Second, the uptake of UK institutional investors is very low compared to the rest of Europe. For this reason, they may have decided not to invest, or could have already invested in larger and more liquid European ETPs,” Butterfill added.
CoinShares offers cryptocurrency exchange trading products in Europe, but not currently in the UK.
UK regulatory environment
The FCA has taken a cautious stance towards the cryptocurrency industry to ensure investor protection while promoting innovation. In 2021, the FCA banned the sale of derivatives and exchange-traded products to individual investors. However, the UK’s stance on cryptocurrency regulation has since evolved.
A statement from the FCA in March first signaled its intention not to block cryptocurrency ETN requests from professional investors. The London Stock Exchange then announced plans to begin accepting Bitcoin and Ethereum ETN applications in the second quarter, with cryptocurrency ETN trading starting May 28. These products provide exposure to the price movements of Bitcoin and Ethereum, albeit through a slightly different financial structure than direct ETFs.
ETNs, unlike US spot Bitcoin ETFs, do not directly own the underlying asset they represent. Instead, ETNs are debt securities issued by financial institutions that promise to pay holders a return equal to the performance of the assets minus fees and expenses.
Could a Bitcoin ETF come to the UK?
Currently, retail investors in the UK also face obstacles preventing them from investing directly in US spot Bitcoin ETFs. The biggest problem lies in the regulatory frameworks governing securities in both countries, which do not always align smoothly for cross-border investments.
Coinbase UK CEO Daniel Seifert said the recent availability of cryptocurrency ETNs was a positive development for the UK. When asked if Bitcoin ETFs would be available in the UK, Seifert responded: “I would say more choice for consumers is always good.”
Bivu Das, UK managing director at Kraken, is also among those optimistic about the potential of Bitcoin ETFs in the UK, highlighting the importance of these financial products in providing regulated investment opportunities to a wider audience.
Last March, Das explained that the world has changed significantly since these products were restricted in the UK in 2021. “The UK has always said it wants to be a cryptocurrency hub and this is one of the basic fundamentals to potentially meet that definition,” he added.
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