Which platforms will offer crypto ETNs?

The Financial Conduct Authority (FCA) will lift the ban on the sale of cryptocurrency (crypto) exchange-traded notes (ETNs) to retail investors on 8 October.

Retail investors are increasingly interested in crypto, but unless they want to open a wallet on a crypto exchange and hold cryptocurrencies directly, they are often forced into some form of proxy exposure. That has, in the past, crypto stocks like Strategy (NASDAQ:MSTR) (formerly MicroStrategy) become top stock picks for DIY investors.

“Crypto ETNs open the door to more choice and diversification for UK investors,” said Alex Campbell, head of communications at FreeTrade. “They turn crypto from a fringe trade into a regulated tool for building resilient portfolios. The UK still lags other major markets in its crypto regulations but this change marks a welcome step forward.”

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“Digital assets continue to grow in popularity and are increasingly seen as a part of the financial lives of consumers,” said John Dobson, head of investment solutions at Interactive Investor.

According to WisdomTree research, investors are considering crypto to help boost pension pots, fund a property deposit or even pay for a holiday.

The FCA has made it clear that Consumer Duty rules will apply to firms that are offering crypto ETNs. This means any platforms selling them to retail investors are obliged to ensure the products meet the needs, characteristics and objectives of their customers, and provide sufficient information to customers so they can make an informed decision.

That appears to have given some platforms pause for thought. While some platforms have told MoneyWeek they intend to offer crypto ETNs to their customers soon after the ban is lifted, others are taking a more measured approach – while some have no plans to offer the products at all.

The ban on the sale of crypto ETNs to retail investors has been in place for almost five years, since 6 January 2021. During that time, the price of Bitcoin has increased by over 250%.

Where will you be able to buy crypto ETNs?

These investment platforms told MoneyWeek they intend to offer crypto ETNs to their users as soon as they are able to (note that this is not an exhaustive list of platforms offering crypto ETNs):

• Fidelity Adviser Solutions (which is only available to advised clients)
• FreeTrade
• Stratiphy

The following platforms have indicated that they intend to offer crypto ETNs in the near future, though not necessarily immediately upon the lifting of the ban:

• Fidelity Personal Investing (Fidelity’s platform for direct clients)
• IG
• Interactive Investor

“In light of the FCA lifting the ban on crypto ETNs for retail investors, we are currently reviewing the regulatory requirements for these products and working on any changes required to offer these to retail clients,” said Dobson regarding Interactive Investor’s plans.

Michael Healy, UK managing director of IG, said the company plans to add ETNs “over the next couple of months,” adding that IG already offers direct access to crypto assets and that ETNs will be added in due course as part of its broader crypto strategy.

Hargreaves Lansdown said it is considering its position in light of the regulatory change and will update clients in due course. Similarly, AJ Bell and eToro both indicated they are currently assessing customer demand and practical implications of offering crypto ETNs through their platforms.

“Although the FCA is opening retail access to crypto ETNs from 8 October, eToro will not be offering them immediately,” said Dan Moczulski, UK managing director at eToro. “As a Restricted Mass Market Investment (RMMI), these products carry specific obligations, and we believe the right approach is to introduce them only if and when there is meaningful client demand.”

Moczulski added that, given eToro already allows users to buy crypto and is comfortable offering RMMI products, it “will be able to roll out ETNs quickly when that decision is made”.

Some providers, including Moneybox and BestInvest, told MoneyWeek that, at present, they have no plans to offer crypto ETNs to their clients.

Will you be able to buy crypto ETNs in an ISA?

One of the potential advantages of crypto ETNs for investors is that, unlike holding crypto directly, they could theoretically be held in an ISA. If so, this would exempt them from capital gains tax.

But while other forms of exchange-traded products, such as exchange-traded funds (ETFs) can be held in a stocks and shares ISA, it is not yet confirmed whether this will be the case for crypto ETNs.

HMRC hasn’t yet announced the ISA status of crypto ETNs, though a spokesperson told MoneyWeek that it expects to confirm this one way or another by 8 October.

Should you buy a crypto ETN?

Just because you can buy a crypto ETN, it doesn’t necessarily mean you should.

Crypto is an inherently risky investment. While mainstream cryptocurrencies like Bitcoin and Ethereum have been high performers over recent years, they are highly volatile over the short term, and less established crypto assets can be even more so.

Many investors believe cryptocurrencies have no intrinsic value, and that as such buying them is less about investment and more about speculation.

“It’s imperative that retail investors do their research and understand the risks before allocating any part of their portfolio to digital assets,” said Dobson.

Investors should also be aware that losses from crypto ETN investments won’t be covered by the Financial Services Compensation Scheme (FSCS). Providers considering selling crypto ETNs to consumers will be obliged to ensure they meet their needs and that they are appropriately informed about them.