After four years in the wilderness, bitcoin
exchange traded notes (ETN) are set to return to London and the change could prove more significant than many expect.
Starting Oct. 8, crypto ETN products, which allow retail investors to gain exposure to cryptocurrencies without buying the tokens themselves, will become available after being banned by the Financial Conduct Authority (FCA) in January 2021. The regulators argued at the time that extreme volatility, susceptibility to fraud and the difficulty of valuation made them too risky for retail investors.
But the ban also left the U.K. lagging behind developments elsewhere. The U.S. spot exchange-traded funds have been a resounding success, with more than $65 billion dollars flowing into bitcoin and ether (ETH) ETFs since their inception in January last year, data from SoSoValue show. European investors also have access to a range of exchange-traded products. U.K. investors were forced to look abroad for regulated exposure, often turning to Strategy (MSTR) stock as a proxy.
“The importance of bitcoin exchange traded notes coming to London is being underestimated,” Charlie Morris, the founder of digital asset investment firm ByteTree, said in an interview. “London is the world’s second-largest financial center, and many funds have touch points with London, whether it be custody, trading, legal or settlement.”
The ban, for example, locked products complying with UCITS, the European framework for regulated mutual funds and ETFs, from accessing crypto if they wanted to have contact with the London-based financial system.
“This will change. Bitcoin is about to be opened up to the global fund market, and there will be legal clarity. This could be as important as the USA launches last year, and possibly more so over time. Sustained demand for bitcoin remains underpinned for years to come through exchange traded notes,” Morris said.
The reversal signals a recalibration. Britain, once an early crypto hub with initiatives from then Chancellor Rishi Sunak and firms like Jersey-based CoinShares, is moving to reassert relevance. Industry figures such as former Chancellor George Osborne, who is now an adviser to Coinbase, have warned that London risks falling behind if it does not embrace innovation.
“The Financial Conduct Authority’s reversal signals more than a rule change. It is a clear sign that the winds are shifting in the U.K.’s financial landscape, with policymakers now keen to keep the country relevant in a fast-evolving global market,” said Bitcoin OG Nicholas Gregory.
Even so, the complex structure of the country’s investment-advice industry may mean take up is slower than proponents assume, said Peter Lane, CEO of Jacobi Asset Management. Just because the products are legal, doesn’t mean they will be offered to clients.
“The U.K. adviser network is highly fragmented, with IFAs [independent financial advisers], restricted and tied advisers all operating under different models,” he said. “It will take time for firms across these groups to evaluate the implications of the crypto ETN ban being lifted, assess suitability frameworks, and build the necessary due diligence processes before they are in a position to consider offering or recommending such products to clients.”
UPDATE (Aug. 20, 07:48 UTC): Adds wider unbanning of crypto ETNs in second paragraph.