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After years of regulatory hesitancy that sidelined the United Kingdom in the global digital assets boom, the London Stock Exchange announced it will now accept applications for Bitcoin ETN trading admissions. Provided that the prospectuses for such instruments are approved, the LSE anticipates that from 28 May 2024, Bitcoin and Ethereum Exchange Traded Notes will be admitted for trading. This move signals a critical step towards rectifying the UK’s cautiousness that stifled investment opportunities, especially as we enter a bitcoin bull run.
Despite this positive sign, it’s important to distinguish between ETNs and ETFs. Unlike ETFs, ETN issuers are not required to purchase or sell any of the underlying asset. Instead, they function as a debt instrument or note established by an issuer, mirroring the value of an underlying asset, such as an index or, in this instance, bitcoin. However, the guidance sets a more rigorous standard, necessitating that successful applicants physically hold the underlying asset. This elevated requirement aligns them more closely with ETFs, diverging from the typical practice of ETNs.
The UK is home to the world’s oldest financial center, has lagged behind much of the rest of the world in embracing bitcoin, partly due to the Financial Conduct Authority’s strict regulations. These restrictions came when other countries, like the United States, Germany, Singapore, and Hong Kong were making significant strides in institutional adoption of bitcoin and establishing clear regulatory frameworks.
Due to a ban on selling derivatives and ETNs linked to unregulated digital assets, UK investors were left out and missed significant gains during the bull runs. This contrasted sharply as the US approved its first bitcoin spot ETF. The FCA’s approach, intended to shield consumers from volatile price movements, also prevented them from participating in potentially lucrative market trends.
UK investors face tangible consequences from the FCA’s stringent regulations. For instance, during the 2021 bull run, while global counterparts capitalized on bitcoin’s record highs, UK investors were relegated to the sidelines, missing out on substantial gains. This regulatory disconnect curtailed individual financial opportunities and added to the feeling of lost shared wealth growth, highlighting the real-world impact of regulatory decisions on the everyday investor.
Industry voices have highlighted how these restrictive measures have led to an exodus of crypto-related businesses seeking more accommodating regulatory climates, diminishing the UK’s standing as a potential ‘crypto hub’.
This forthcoming admission of Bitcoin ETNs is a watershed moment, signaling the UK’s readiness to reconcile with the digital asset space as bitcoin shows signs of entering another bull phase. However, this shift also arrives amidst scrutiny of the FCA’s past decisions. By limiting access to a growing asset class, the UK inadvertently increased investor risk by pushing them towards unregulated platforms.
As the UK embarks on this new chapter, the admission of a Bitcoin ETN represents an expansion of tradable assets on the London Stock Exchange and symbolizes a much-needed recalibration of the UK’s regulatory stance towards bitcoin. This offers investors hope and potential for redemption, allowing them to participate. It is hoped that the FCA will also reconsider and reverse the short-sighted ban on retail participation, which leaves the UK out of step with most of the world’s other key financial markets.
While this move marks an important shift, the path ahead requires continued dialogue between regulators, investors, and industry stakeholders to ensure that the UK can reclaim its position as a leading financial hub, this time in the digital age.
