In a groundbreaking move, the London Stock Exchange (LSE) has embraced the world of cryptocurrency investments by announcing listings for Bitcoin and Ethereum crypto exchange-traded notes (ETNs) for professional investors.
This historic decision marks a significant shift in the United Kingdom’s financial landscape, as it opens its doors to digital assets which will commence in the second quarter of 2024.
The London Stock Exchange (LSE) which unveiled this plan on Monday, announced the acceptance of applications for Bitcoin and Ethereum ETNs, as confirmed by the FCA’s stance of non-objection. While the exact launch date has not been disclosed, the LSE has assured stakeholders that the information on the commencement will be communicated in due time.
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This development introduces a focused market segment in the UK for investors looking to diversify into digital assets. By utilizing ETNs, investors trade in products that resemble bonds with added cryptocurrency. However, it is important to note that crypto ETNs admitted to trading on the London Stock Exchange will be exclusively available under trading segments designed as “Professional investors only”, excluding retail traders from participation.
The LSE has further outlined stringent requirements for crypto ETNs seeking admission. These include being physically backed, non-leveraged, possessing a reliable and publicly available market price or value measure for the underlying crypto assets, and having Bitcoin or Ethereum as the said underlying assets.
Additionally, the underlying crypto assets must be held by custodians subject to Anti-Money Laundering (AML) regulations in various jurisdictions, including the United Kingdom, European Union, Jersey, Switzerland, or the United States.
This move follows a recent update from the Financial Conduct Authority (FCA), the UK’s financial industry watchdog, concerning crypto ETNs for professional investors. The FCA’s revised position sets the stage for Recognised Investment Exchanges (RIEs) to create a UK-listed market segment specifically for crypto asset-backed Exchange Traded Notes (CETNs).
While supporting the creation of a UK-listed market segment for crypto asset-backed ETNs for professional investors, the FCA maintains its skepticism regarding retail consumers’ involvement in these instruments. The ban on selling crypto ETNs and derivatives to retail consumers, implemented in January 2020, remains in effect.
Despite a previously tepid environment for cryptocurrency investments, with the UK parliament’s Treasury committee in 2023 urging the government to regulate cryptocurrency trading as a form of gambling rather than a financial service, the move by LSE signifies a significant shift.
Also, recall that the UK’s current prime minister Rishi Sunak, who was then the chancellor of the Exchequer over a year ago, made moves to make Britain a global hub for crypto asset technology and investment.
Announcing this, he said;
“It’s my ambition to make the UK a global hub for cryptoasset technology, and the measures we’ve outlined today will help to ensure firms can invest, innovate and scale up in this country. We want to see the businesses of tomorrow and the jobs they create here in the UK, and by regulating effectively, we can give them the confidence they need to think and invest long-term. This is part of our plan to ensure the UK financial services industry is always at the forefront of technology and innovation”.
By recognizing the potential of cryptocurrency and regulating it now, the move signifies a recognition of the growing importance and legitimacy of cryptocurrencies in the global economy. By offering listings for Bitcoin and Ethereum, the London Stock Exchange is not only catering to the increasing demand for crypto investment options but also signaling its readiness to adapt to the evolving needs of investors in the digital age.
This bold step will no doubt attract a new wave of institutional investors who have been eagerly awaiting mainstream avenues to access cryptocurrencies within the traditional financial system. Also, it paves the way for further integration of digital assets into established financial markets, potentially unlocking new avenues for capital flows and investment opportunities.