A slew of crypto ETFs have just listed in London.This may surprise those frustrated by the UK FCA regulator’s obstinate refusal to let retail investors trade crypto ETFs. In March 2024, the FCA reiterated its view, “The FCA continues to believe cETNs and crypto derivatives are ill-suited for retail consumers due to the harm they pose. As a result, the ban on the sale of cETNs (and crypto derivatives) to retail consumers remains in place”.
FCA updates position on cryptoasset Exchange Traded Notes for professional investors | FCA
Professional investors
In the same press release, the FCA said, “The Financial Conduct Authority (FCA) will not object to requests from Recognised Investment Exchanges (RIEs) to create a UK listed market segment for cryptoasset-backed Exchange Traded Notes (cETNs). These products would be available for professional investors, such as investment firms and credit institutions authorised or regulated to operate in financial markets only”.
Institutional investors invest in all sorts of ETFs, across all sorts of asset classes. For instance, some UCITS funds use ETF to access commodities that cannot be held directly under the UCITS rules.
For volatile cryptocurrencies that can sometimes go up or down 10% or more in a few hours, trading throughout exchange opening hours is especially valuable for timing entries and exits.
Moreover, institutions appreciate the convenience of letting someone else take care of issues such as custody of cryptocurrencies. It is much easier to buy an ETF, rather than go through an extensive due diligence process and have investment committees, risk committees and perhaps elderly pension fund trustees approve service providers such as a new custodian for a cryptocurrency ETF.
Global financial centre
And the London Stock Exchange is a global venue for trading equities, which attracts investors, and foreign company listings, from all over the world.
London is also the leading centre for traditional, fiat currency trading, and some of the largest currency managers have already diversified into cryptocurrency offerings. It is entirely natural that the leading cryptocurrency ETF operators should want to have their products listed on the LSE.
FCA retail rethink?
There are hopes that the FCA’s stance on retail investors accessing crypto products may change. When and if the FCA does align itself with numerous other regulators around the world, ETF providers want to hit the ground running with a product that is already listed and already has a clear live track record that local investors can review.