Why it might be dangerous to include cryptocurrency ETN in your ISA

If cryptocurrency investors purchase cETNs into a stocks and shares ISA, they may be subject to short-term market volatility due to HMRC regulations

After HMRC confirmed that investors would only be permitted to hold the assets in a stocks and shares ISA for six months, adding cryptocurrency exchange-traded notes (ETNs) could significantly increase the risk of your portfolio.

Last month, the Financial Conduct Authority (FCA) removed a ban that had been in effect since January 2021 on the sale of cryptocurrency ETNs (cETNs) to individual investors. Crypto ETNs are a tool that tracks the value of cryptocurrencies, such as Ether or Bitcoin, without requiring direct possession of these assets.

The purchase and holding of cryptocurrency ETNs in a stocks and shares ISA was confirmed by HMRC on the day the ban was lifted.

There is, however, a catch. According to the regulations, you have to transfer your cryptocurrency holdings to an Innovative Finance ISA after the six-month period.

"The government has decided to restrict their inclusion to the Innovative Finance ISA due to the innovative nature of cETNs and the fact that this is an emerging market," HMRC informed BFIA. This achieves a balance between giving investors more options and properly controlling risk. A "

However, if you purchase cETNs into your stocks and shares ISA now, you may be exposed to severe volatility when you have to sell and relocate your holdings due to the complicated regulations.

Regarding holding cETNs in ISAs, what has HMRC said?

On October 8, HMRC declared that cETNs could be held in an ISA for stocks and shares between October 8, 2025, when the prohibition on selling cETNs to retail investors was lifted, and April 6, 2026.

It will be impossible to purchase cETNs through an ISA for stocks and shares starting in April. Alternatively, they can only be purchased through an Innovative Finance ISA (IFISA). These products are far more uncommon.

According to the most recent data available, there are over 3.8 million stocks and shares ISAs in the UK, compared to about 17,000 IFISAs.

According to Viktor Nebehaj, CEO and co-founder of FreeTrade, "the majority of the amounts subscribed to ISAs are cash and stocks and shares." "ISAs are a rounding error in innovative finance. A "

At the time, it was unclear what would happen to CETNs who had invested in stocks and shares that were still available on April 6. However, HMRC has confirmed this week that any such holdings would need to be liquidatedthat is, sold off at the current market price.

This is confirmed by an HMRC newsletter released on November 4.

Exchange-traded notes for cryptocurrencies may only be held in an Innovative Finance ISA as of April 6, 2026. If the ISA manager is not authorized to provide the Innovative Finance component, they must be one of the following.

ISA liquidated stocks and shares; cryptocurrencies are unstable. Given the price increases they have experienced over the past ten years, investors may have a compelling case to hold them as a long-term investment or, more specifically, as a possible inflation hedge (especially when combined with gold).

However, if investors are compelled to sell on a certain future date, that is not feasible. Any investors who purchased a cETN into their stocks and shares ISA after the ban was lifted will have to sell their holdings and crystallize any losses they have incurred in the interim if the cryptocurrency markets happen to be experiencing a decline in April.

Nebehaj remarked, "I don't understand HMRC's current guidance on crypto ETNs." Customers can currently purchase these assets in their stocks and shares ISA, but they will have to sell or transfer their cryptocurrency ETNs into the obscure and rarely used Innovative Finance ISA after the tax year. The "

"People can choose to invest in cryptoasset Exchange Traded Notes through their registered pensions or stocks and shares ISAs," a representative for HMRC said. Because it requires careful drafting, industry engagement, and adherence to parliamentary procedure, changing ISA rules takes time. In order to implement these changes by April 2026, we are working rapidly. The "

In the future, will it be possible to purchase cryptocurrency ETNs through stocks and shares ISAs?

The tax ramifications must be taken into account by anyone purchasing a cryptocurrency ETN right now. If they are one of the few Brits who actually have an IFISA, they must either be prepared to transfer their holdings from a stocks and shares ISA to an IFISA in April, or they must hold the investment outside of a tax-efficient ISA, exposing it to CGT.

Naturally, this raises the question of why HMRC is complicating matters for investors in the United Kingdom.

Nebehaj stated, "The ISA framework needs to be simplified as is, but continuing Innovative Finance ISAs in this manner creates uncertainty for investors who have waited to get spot crypto exposure in their brokerage account."

HMRC has acknowledged that it is discussing the possibility of reinstating stocks and shares' ISA eligibility in the future with pertinent industry leaders.

According to an HMRC representative, the government will continue to review the inclusion of cETNs in tax-advantaged accounts with the goal of eventually incorporating them into the stocks and shares ISA as the market develops and consumer awareness grows.

Nebehaj, however, has urged HMRC to maintain a straightforward strategy rather than changing the regulations. "Luckily, there's a simple fix: just do nothing," he stated. "At the moment, cETNs are allowed under the stocks and shares ISA regulations. The "

What are ETNs for cryptocurrency?

Though they are debt-linked assets that follow the price of a particular asset, ETNs are comparable to exchange-traded funds (ETFs). When it comes to cETNs, that asset is a cryptocurrency.

Cryptocurrency is becoming more and more important to British investors and financial planners. According to Charlie Morris, chief investment officer at ByteTree Asset Management, it has evolved into the internet's reserve currency.

6.5 million British people currently own cryptocurrency investments, according to research from broker Bitpanda. Twenty-two percent of these consider cryptocurrency to be a legitimate long-term investment, and more than one in five (22%) hold it as a hedge against inflation and economic instability.

"Crypto is no longer just for early adopters," stated Bitpanda's UK country lead, Pantelis Kotopoulos. "People are investigating it in addition to more conventional options, not to replace them, but to diversify their financial situation and deal with a more unstable economic climate. The "

The potential for cETNs to be held in an ISA is one of their primary draws for exposure to changes in cryptocurrency prices. They would not be subject to capital gains tax (CGT) as a result.

However, investors who wish to do so are subject to the short-term volatility that characterizes cryptocurrency markets due to HMRC's intricate application of the ISA regulations.