Key Points
- The London Stock Exchange (LSE) plans to accept Bitcoin and Ethereum ETN applications from Q2 2024.
- The UK’s Financial Conduct Authority (FCA) will allow professional investors to access crypto-backed ETNs.
The London Stock Exchange (LSE) has announced its intention to begin accepting applications for Bitcoin and Ethereum exchange-traded notes (ETNs) from the second quarter of 2024.
This decision follows the success of Bitcoin ETFs in the US, sparking interest in similar crypto investment products globally.
Details on Crypto ETNs
ETNs are essentially debt securities providing exposure to an underlying asset. In this case, crypto ETNs allow investors to trade securities that reflect the performance of crypto assets. These ETNs will only be traded during the LSE’s daily trading hours.
Compared to exchange-traded funds (ETFs), ETNs are seen as a more flexible alternative. Unlike ETFs, which are supported by a collection of assets, ETNs are debt instruments backed by their issuers.
The LSE stipulates that crypto ETNs must be physically backed, non-leveraged, and supported by either Bitcoin or Ethereum. The underlying crypto assets should be stored predominantly in a cold wallet or a similar secure storage solution. These assets must also be held by a custodian compliant with Anti-Money Laundering regulations in the UK, the EU, Switzerland, or the US.
Regulatory Approval
The Financial Conduct Authority (FCA), the UK’s top financial regulator, has stated it will not object to Recognised Investment Exchanges (RIEs) establishing a market segment for crypto-backed ETNs. The FCA has agreed to offer these products to “professional investors”, including credit institutions and investment firms authorized or regulated to operate in financial markets.
The FCA underscores the need for exchanges to implement adequate controls to protect investors. Crypto-backed ETNs must comply with requirements such as ongoing disclosure and prospectuses as part of the UK listing regime.
While exchanges can offer ETNs to institutions, the FCA stressed their unsuitability for retail investors due to associated risks. Retail consumers will continue to be prohibited from purchasing crypto-backed ETNs, according to the regulator.
The FCA continues to caution individuals that cryptoassets are high risk and largely unregulated. Investors should be prepared to potentially lose all their money, warns the regulator.
