The Financial Conduct Authority (FCA) is to consult on lifting the ban on selling cryptocurrency Exchange-traded notes (ETNs) to retail investors in the UK.
ETNs are similar to an exchange-traded fund (ETF), but they are technically debt instruments that mirror the performance of a specific asset. A crypto ETN would track the price of a specific cryptocurrency, such as bitcoin.
They are available to professional investors in the UK, but the FCA has banned their sale to individual (DIY or retail) investors since 2021 – despite similar products like the iShares Bitcoin Trust having more than doubled since they were launched in the US at the start of last year.
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But the decision today (6 June) could reverse this ban, as long as the crypto ETN is traded on an FCA-approved investment exchange. The sale of crypto ETNs would also be subject to financial promotion rules, to ensure that customers were aware of the risks involved and weren’t missold the investments.
“This is a landmark moment for the UK digital asset market,” said Russell Barlow, CEO of 21Shares, which issued the London Stock Exchange’s first physically-backed crypto ETNs (for professional investors) in 2024.
“We fully support the FCA’s move to provide regulated access to crypto ETNs for retail investors,” Barlow added.
Bitcoin prices hit $100,000 for the first time in December and have gone on to reach new all-time highs this year.
What is the FCA’s approach to crypto regulation?
The decision to potentially allow crypto ETNs has come as part of the FCA’s ongoing crypto regulation roadmap.
“This consultation demonstrates our commitment to supporting the growth and competitiveness of the UK’s crypto industry,” said David Geale, executive director of payments and digital finance at the FCA. “We want to rebalance our approach to risk and lifting the ban would allow people to make the choice on whether such a high-risk investment is right for them, given they could lose all their money.”
The FCA is also looking into the possibility of issuing stablecoins – cryptoassets that are pegged to a fiat currency in order to (hopefully) stabilise their value – and has consulted with the Bank of England in creating a stablecoin regime.
“We want to strike a balance in support of a sector that enables innovation and is underpinned by market integrity and trust,” said Geale.
Can UK investors buy crypto ETFs?
Technically, the products that have been green-lit by the FCA will be ETNs, but these function similarly to crypto ETFs.
Some experts hope that by allowing UK investors to buy crypto ETNs, it could lead to crypto ETFs being permitted in future.
“Hopefully 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 centre,” said Dan Moczulski, managing director at eToro UK. “Perhaps it also nudges us closer to the day when a crypto ETF will be able to sit inside a stocks and shares ISA, meaning more freedom for tax-savvy investors.”
It isn’t yet clear when DIY investors in the UK will be able to buy crypto ETNs. A consultation on the proposal is taking place until 7 July.
If investors want to gain exposure to crypto price movements, there are some options already available to them.
They could buy a stock like MicroStrategy, which was one of the most-bought stocks during May on Interactive Investor. MicroStategy is the world’s largest corporate holder of bitcoin; its CEO Michael Saylor is a bitcoin proponent and has been accumulating the cryptocurrency on the company’s balance sheet since August 2020.
Be warned, though, that because MicroStrategy uses leverage (i.e. debt) to do this, its share price can be even more volatile than bitcoin prices.
For less volatility, whilst still offering exposure to crypto market movements, investors could select a crypto-related ETF, like the Invesco CoinShares Global Blockchain UCITS ETF (LON:BCHN). This holds crypto-related stocks like MicroStrategy and Coinbase, as well as other companies that are making use of the broader world of blockchain technology, such as MercadLibre.
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