4 months ago
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The UK’s late entry into the crypto ETN arena contrasts with other jurisdictions in the European market and beyond, where such products have been available for years.
The London Stock Exchange made headlines on May 28 by introducing crypto exchange-traded notes (ETNs), a move spurred by recent regulatory changes in the UK. The Financial Conduct Authority (FCA) had recently opened the door to Bitcoin and Ethereum-backed ETNs, signaling a huge shift in the regulatory landscape.
Despite high expectations surrounding the launch, trading activity has been sluggish. Charlie Morris, head of ByteTree, pointed out in a tweet that only 200 shares from 21Shares were traded, indicating a lack of market enthusiasm. This underwhelming start raises concerns that the UK, one of the largest capital markets in the world, may lag behind other markets in crypto ETN adoption.
The FCA’s Policy Shift
ETNs are debt securities traded on stock exchanges, designed to mirror the performance of specific assets. The newly approved ETNs in London are linked to Bitcoin and Ethereum, the two leading cryptocurrencies endorsed by the FCA.
Previously, the FCA had cautioned against the volatility of crypto assets. However, in a policy reversal in March, the regulator announced it would no longer oppose listing requests for crypto-backed ETNs. This change paved the way for the approval of ETFs from 21Shares, Invesco, and WisdomTree, marking a significant shift in the UK’s regulatory stance.
The UK’s late entry into the crypto ETN arena contrasts with other jurisdictions in the European market and beyond, where such products have been available for years. Initially allowed for retail investors, access to these financial instruments in the UK was abruptly halted by the FCA in 2020, leaving both retail and professional investors sidelined.
The ban, aimed at curbing perceived risks, came at a time when Bitcoin’s price had fallen below $15,000, a fraction of its current value. Since then, the cryptocurrency market has experienced a huge comeback and interest among investors has surged.
Retail Exclusion Raises Questions
Despite the excitement about crypto ETNs hitting the London Stock Exchange once again, restrictions limiting access to regulated financial investors have left retail traders on the sidelines. According to new FCA regulations, these products are only available to professional investors, unlike in the United States, where retail traders have market access.
The fact that retail investors are barred from trading these ETNs has sparked speculation about how they might perform in the future. In comparison to the United States, where products like BlackRock IBIT have gained traction, the introduction of crypto ETNs in the UK hasn’t had the same impact.
While the modest initial trading volume has been a cause for concern among experts, there is hope for future retail approval. Charlie Morris noted the peculiar nature of the launch, pointing out that it occurred without warning or public relations efforts. He suggested that this might be a preliminary step before allowing retail investors to participate.
