The London Stock Exchange has confirmed that it will begin accepting applications for bitcoin and ether exchange-traded notes (ETNs) in the second quarter of 2024 – but the Financial Conduct Authority (FCA) approving any of these products for UK retail investors is still very unlikely, say European product providers.
The FCA said it will not object to requests from “Recognized Investment Exchanges” to create a UK-listed market segment for crypto asset-backed ETNs. This announcement may have come after pressure the regulator is receiving from various groups on why a ban is still active, according to one product provider.
In January, the U.S. Securities Exchange Commission (SEC) approved almost a dozen spot Bitcoin exchange-traded products which in turn has triggered a Bitcoin rally and trading frenzy. BlackRock’s spot Bitcoin ETF trading under the ticker “IBIT” is leading the way and has reached $10 billion in assets under management (AUM) in record time.
Across the pond, the UK’s regulatory body the FCA first passed a ban on the sale of derivatives and ETNs back in October 2020 and this went into effect in January 2021. Back then the FCA said it considered crypto products to be “ill-suited” for retail consumers due to the potential harm they pose — this ban remains in place.
Positive Step But Marginal
Crypto asset management firm Coinshares head of asset management Frank Spiteri said the news that crypto ETN applications are being accepted is a positive step — if only marginal.
“On the other hand, great to see the LSE opening up a segment for crypto ETNs; these products have thrived on European exchanges such as Xetra, Six Switzerland, and Euronext Amsterdam and Paris,” explains Spiteri.
However, despite the progress made in accepting applications for crypto ETNs, the FCA’s position remains unchanged on the products.
FCA Remains Out of Step?
“It is disappointing to see that the FCA remain out of step in terms of retail investors, who, in the rest of Europe and the United States can use regulated listed products to access digital assets but who, if UK residents, are required to use uncollateralized and unregistered exchanges to invest in this asset class,” said Spiteri.
The FCA’s approach to crypto has been cautious with the regulatory body warning crypto investments are volatile and unpredictable. Over the years the FCA has stressed any crypto promotions must also be clear, fair and not misleading, labelled with prominent risk warnings and must not inappropriately incentivise people to invest.
It seems the road to having crypto ETNs and ETPs approved for UK retail investors is highly unlikely in 2024 and the near future.
“However encouraging this may be from the FCA, the road to having readily available crypto exposure in the form of a proven structure such as ETN/ETP is unfortunately still far away in the UK,” said Laurent Kssis, a crypto expert on trading and ETFs at CEC Capital.
Over the years various lobbying groups have failed to convince the crypto team at the FCA to lift the ban on crypto ETPs whilst they are thriving in Europe, explains Kssis.
“The statement from the FCA was posted in our opinion due to adverse pressures they are receiving from various groups on why a ban is still active on the back of the most successful etf launch of the US Bitcoin ETFs,” explains Kssis.
For around four years, retail investors in the UK were able to access crypto ETPs. Back in 2017, Cryptocurrency enthusiasts were given access through Hargreaves Lansdown to crypto ETNs, as reported in Citywire. Back then Hargreaves clients were given full access to Bitcoin and Ether via an ETN which could be placed in a Sipp, although not an ISA.
“We must not forget that cryptocurrency ETPs were available on all major U.K. platforms before the ban and people are still holding shares in the Swedish bitcoin products in their sipp!” said Kssis. “We remain perplexed that any signals for a listing approval this year remain unlikely as the U.K. brace for a general election at the end of the year,” adds Kssis.
UK Crypto Hub Status is Questionable
In 2022, the UK government announced moves that will see stablecoins recognised as a valid form of payment as part of wider plans to make Britain a global hub for crypto asset technology and investment – a hub for everything crypto, blockchain and Web3 but this status is questionable.
“How can the U.K. call itself the crypto hub of Europe and not have Crypto ETP issuers promoting [products] to retail investors as we see in Germany and Sweden, not to mention Switzerland,” questions Kssis.
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