Why the UK remains years not months off a crypto ETP

Tom Eckett

a gold coin on a table

Cryptocurrency exchange-traded products (ETPs) 

are back on the agenda again

 after Deutsche Boerse became the latest player have a product listed on its exchange.

The product in question was ETC Group’s BTCetc Bitcoin Exchange Traded Crypto (BTCE) which listed on Xetra via HANetf earlier this month following approval from the German financial regulator BaFin at the start of the year.

With rivals Deutsche Boerse and SIX Swiss both with crypto ETPs on their exchanges, this brings into question when the market is going to see a similar product on the London Stock Exchange.

However, the answer is it still remains some years away before this happens and there are two key reasons for this.

The first is the UK regulator, the Financial Conduct Authority (FCA), is far less pro crypto assets in general compared to other regulators in Europe.

Just last year, the FCA looked to ban the sale of crypto derivatives to retail investors following a consultation with the market.

At the time, Christopher Woolard, executive director of strategy and competition at the FCA, said: “Most consumers cannot reliably value derivatives based on unregulated cryptoassets. Prices are extremely volatile and as we have seen globally, financial crime in cryptoassets markets can lead to sudden and unexpected losses.

“It is therefore clear to us that these derivatives and exchange-traded notes are unsuitable investments for retail consumers.”

Therefore, unless the UK regulator has a dramatic change of heart in the coming months, this is a key stumbling block for the crypto ETP market in the UK.

On a more technical point, it could also be a long time before the UK’s clearance house, LCH Clearnet, has the ability – or desire – to clear the underlying assets.

Word on the street is ETC Group and HANetf worked with Eurex Clearing for two years on getting BTCE centrally cleared.

Central clearance is a big point for the major exchanges such as the LSE as it is meant to reduce the risk of settlement failures.

As Townsend Lansing, head of ETPs at CoinShares, told ETF Stream: “There are still a few challenges before we see a UK-listed crypto ETP. BaFin is more willing to approve crypto than the FCA and the market is not seeing any progress on the clearing side.”

However, market participants in the crypto space are hopeful the Xetra listing will make other exchanges and clearing houses take note.

“We should see additional progress from other exchanges as a result,” Lansing continued. “Clearing houses will ask themselves: if Eurex has done it, why can’t we?”

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