A raft of cryptocurrency exchange-traded products could be launched in London after regulators softened their hard-line opposition to allowing domestic access to cryptocurrency funds.
However, industry players have criticized the UK Financial Conduct Authority for limiting its opening to “professional investors” and continuing to ban retail investors from purchasing crypto ETPs.
The FCA said last week that it “would not object” to proposals from exchanges such as the London Stock Exchange and Chicago Board Options Exchange to list non-leveraged cryptos linked to Bitcoin or Ethereum, the two most popular cryptocurrencies. Requirements for currency-backed exchange-traded notes. But it added that the tools should only be open to institutions such as investment firms, credit institutions, pension funds and insurance companies.
Its stance contrasts with a growing number of other countries that are opening their doors to individual investors.
Nonetheless, the end of the FCA’s blanket ban on crypto ETPs brings it more in line with continental Europe, Australia, Brazil, Canada, and the United States, which already have crypto ETPs.
U.S.-registered “spot” Bitcoin exchange-traded funds have received $31 billion in funding since launching in January, helping the digital token's price surge to a record high of $73,000 before falling back.
Despite the UK's cautious approach, some existing cryptocurrency players may join.
“The London Stock Exchange is a very important market for us and we will certainly list products where possible and preparations are underway. We hope the retail ban will be lifted soon.” ETC Group chief strategist Bradley Duke said the group operates Europe's largest cryptocurrency fund, the $1.6 billion ETC Group entity Bitcoin.
Townsend Lansing, head of product at CoinShares, the fourth-ranked company, said: “We look forward to engaging with the London Stock Exchange on new listing opportunities and better understanding their requirements and how our products fit.”
WisdomTree, which owns eight European cryptocurrency ETPs with assets in excess of $800 million, said the London Stock Exchange will “provide a more convenient access point for UK professional investors seeking exposure to cryptocurrency ETPs” compared to overseas exchanges. “.
“We are currently working with the FCA and the London Stock Exchange to explore this opportunity more thoroughly,” it added.
Menno Martens, crypto product manager at VanEck, said the FCA’s announcement is a “very positive development” and that it is “considering listing our crypto ETN in the UK.”
However, the UK's stance is unlikely to appeal to all issuers active in the European cryptocurrency ETP market – which has 100 products with total assets of $14.2 billion, according to ETFbook.
One company told the Financial Times: “Obviously the UK won't be able to use it [retail] Current investors. If regulations change and there is customer demand, we will consider offering some services to UK customers. “
Mandy Chiu, head of financial product development at 21Shares, another major player, said that while the FCA's decision was “encouraging” it would continue to “monitor” the situation and currently had no plans to list the product in the UK.
The UK regulator said last week that it “continues to believe that crypto ETNs and crypto derivatives are unsuitable for retail consumers due to the harm they cause.” It added that given that crypto assets are “highly risky and largely unregulated, investors should be prepared to lose all their money.”
However, UK retail investors are free to purchase cryptocurrencies directly on exchanges, which requires additional digital wallets and private keys, as well as the risk of theft.
“I think it’s ridiculous,” said Pawel Janus, head of analysis at ETFbook. “Retail investors can buy cryptocurrencies on exchanges. You have countless different platforms and they’re all approved.
“On the other hand, regulators have had issues giving the green light to ETPs, which are generally a better structure. You know it’s quite reasonably priced, otherwise there would be arbitrage.”
CoinShares’ Lansing said, “It is disappointing that the FCA remains out of step when it comes to retail investors. In other parts of Europe and the United States, retail investors can use regulated listed products to access digital assets, but if they are a UK resident , they need to use uncollateralized and unregistered exchanges to invest in such assets.”
Hector McNeil, co-founder and co-chief executive of London-based HANetf, which lists six ETC Group cryptocurrency instruments on its ETF white label platform, said the FCA’s announcement was “a big step forward. This means the UK is now catching up with the rest of Europe.”
However, McNeil said that with the door open only to professionals, “the bar is still too high”. He argued that access should follow the UK's regime for complex instruments such as leveraged ETFs, with brokers acting as gatekeepers and only allowing through “retail clients who understand and can tolerate the risk of the asset class”.
Tim Bevan, CEO of ETC Group, mentioned Prime Minister Rishi Sunak’s efforts to promote the UK as a digital asset hub.
He said: “If UK regulations allow retail investors to invest in cryptocurrency ETPs through regulated markets, this would bring the UK in line with much of Europe and allow these retail investors to take advantage of the built-in security provided by existing exchanges. “It will also help advance the UK’s position as a global leader in fintech.”
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