Crypto ETNs for UK retail investors may no longer be prohibited by FCA

There are those who hope that the consultation will eventually result in the prohibition on selling cryptocurrency ETFs being lifted

Regarding the lifting of the prohibition on selling cryptocurrency exchange-traded notes (ETNs) to individual investors in the United Kingdom, the Financial Conduct Authority (FCA) will consult.

Though they are technically debt instruments that replicate the performance of a particular asset, exchange-traded funds (ETFs) and ETNs are comparable. The value of a particular cryptocurrency, like bitcoin, would be tracked by a crypto ETN.

Although the FCA has prohibited their sale to individual (DIY or retail) investors since 2021, they are accessible to professional investors in the UK. This is the case even though similar products, such as the iShares Bitcoin Trust, have more than doubled in value since their launch in the US at the beginning of last year.

However, as long as the cryptocurrency ETN is traded on an investment exchange that has been approved by the FCA, the ruling made today, June 6, may lift this prohibition. Regulations governing financial promotions would also apply to the sale of cryptocurrency ETNs in order to make sure that buyers understood the risks and weren't misled.

"This is a historic moment for the UK digital asset market," stated Russell Barlow, CEO of 21Shares, which in 2024 offered the first physically-backed cryptocurrency ETNs (for professional investors) on the London Stock Exchange.

"We fully support the FCA's move to provide retail investors regulated access to crypto ETNs," Barlow continued.

After first hitting £100,000 in December, the price of bitcoin has since risen to new all-time highs this year.

How does the FCA handle regulating cryptocurrency?

The FCA's continuing roadmap for crypto regulation includes the decision to possibly permit crypto ETNs.

"This consultation displays our dedication to fostering the expansion and competitiveness of the UK's cryptocurrency sector," stated David Geale, FCA executive director of payments and digital finance. Because they could lose all of their money, people could decide if such a high-risk investment is right for them if the ban is lifted. This would help us rebalance our approach to risk.

The FCA has consulted with the Bank of England in order to create a stablecoin regime and is also investigating the possibility of issuing cryptoassets that are pegged to a fiat currency in order to (hopefully) stabilize their value.

In order to support a sector that fosters innovation and is supported by market integrity and trust, Geale stated, "We want to strike a balance."

Will crypto ETFs be available to UK investors?

Although the products that the FCA has approved are technically ETNs, they work similarly to crypto ETFs.

According to some experts, enabling UK investors to purchase cryptocurrency ETNs may pave the way for future crypto ETF approval.

According to Dan Moczulski, managing director at eToro UK, "I hope it is a good omen for a future in which fully regulated derivatives and ETFs are available, giving UK retail investors real choice while keeping the traditional you-could-lose-everything warnings front and center." It may also bring us one step closer to the time when a cryptocurrency exchange-traded fund (ETF) can be included in a stock and share ISA, giving tax-conscious investors greater flexibility.

When UK do-it-yourself investors will be able to purchase cryptocurrency ETNs is still unknown. Up until July 7, there will be a consultation on the proposal.

Investors already have a few options if they wish to be exposed to changes in the price of cryptocurrencies.

They could purchase a stock like MicroStrategy, which was among the most popular stocks on Interactive Investor in May. MicroStategy is the biggest corporate bitcoin holder in the world. Since August 2020, CEO Michael Saylor, who supports bitcoin, has been building up the cryptocurrency on the company's balance sheet.

But note that because MicroStrategy employs leverage (i.e. E. debt), its stock price may be even more erratic than that of bitcoin in order to accomplish this.

Investors may choose a crypto-related ETF, such as the Invesco CoinShares Global Blockchain UCITS ETF (LON:BCHN), for lower volatility while still providing exposure to changes in the cryptocurrency market. MercadLibre and other businesses utilizing the wider realm of blockchain technology are included in this, along with cryptocurrency-related stocks like MicroStrategy and Coinbase.