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The UK’s first cryptocurrency exchange traded products are finally set to begin trading next week, almost a decade after the first such vehicles appeared in Sweden.
WisdomTree and 21Shares have been given the green light by the Financial Conduct Authority, the City regulator, to list ETPs investing in “physical” spot bitcoin and ether, the two most popular digital tokens, on the London Stock Exchange on May 28.
However, the ETPs — which form part of a barrage of similar vehicles expected to list on the LSE — will only be available to professional investors because the FCA has ruled that “crypto derivatives are ill-suited for retail consumers due to the harm they pose”.
The stance is in sharp contrast to stock exchanges across much of continental Europe, as well as Australia, Brazil, Canada, Hong Kong and the US, which offer crypto ETPs to both retail and institutional investors.
US-listed spot bitcoin ETFs already boast combined assets of $50bn, despite only launching in January, with about 80 per cent of this held by retail investors, according to regulatory filings.
A series of other crypto ETP managers, including ETC Group and CoinShares, are known to have filed to list vehicles on the LSE, ideally also on May 28 if they receive regulatory sign-off from the FCA in time.
“The FCA approval of our crypto ETPs’ prospectus is a significant step forward for the industry and UK-based professional investors seeking exposure to the asset class,” said Alexis Marinof, head of Europe at WisdomTree, which has $111bn under management globally.
“While UK-based professional investors have been able to allocate to crypto ETPs via overseas exchanges, they will soon have a more convenient access point. FCA approval in this respect could result in greater institutional adoption of the asset class, as many professional investors have been unable to gain exposure to bitcoin and other cryptocurrencies due to regulatory limitations and uncertainty,” he added.
WisdomTree’s Physical Bitcoin (BTCW) and Physical Ethereum (ETHW) ETPs will have fees of 0.35 per cent, the same as equivalent vehicles listed in a number of continental European exchanges.
Ophelia Snyder, co-founder of 21 Shares, which will cross-list its existing Bitcoin and Ethereum Staking ETPs in the UK, with fees of 1.49 per cent, said: “London hosts one of the deepest, most liquid capital markets in the world — where there is proven institutional interest in cryptocurrencies.”
All the UK-listed crypto funds will be constructed as exchange traded notes, a structure common across the European cryptocurrency market. The FCA has only approved vehicles that invest in bitcoin and ether and which are unleveraged and physically backed.
Despite the retail investor ban, issuers remain hopeful that there will be sufficient interest among UK-based professional investors to make cross-listing their ETPs in London worthwhile.
More than 900 institutional investors have built stakes in US-listed spot bitcoin ETFs, SEC filings show, suggesting there may be an audience even for ETNs that are off-limits to retail investors.
“Hedge funds and small family offices have always had an appetite [for crypto ETFs]. Private banks and discretionary fund managers are a little bit more hesitant, but they want to look at this asset class. Multi-asset managers are also looking at it,” said Ravinder Azad, head of UK sales at WisdomTree. The company attracted 14 institutional investors to a UK crypto webinar earlier this year but already had more than 140 sign-ups for a follow-up event in June, according to Azad.
Brown Brothers Harriman’s 2024 Global ETF Investor Survey, released this week, found that in each of the US, Europe and Greater China, more institutional investors said they were bullish about the prospects for digital assets than any other asset class over the next 12 months.
However, one crypto ETF issuer that has no plans to list a product in the UK while retail investors remain off limits told the FT: “You are launching a product that is not universal. It needs to be universal. That is the principle that underlies ETFs everywhere.”
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