UK cryptocurrency ETN trading volumes are minimal, but 21Shares claims that retail access would be a “game changer”

  • Crypto ETNs have had a sluggish start to trading in the UK since their May 28 launch, with a total volume of about $500,000.
  • According to 21Shares, bringing the bitcoin and ether products to the retail market would be a “game changer,” as they are presently exclusively accessible to professional investors.

Following its approval by the Financial Conduct Authority, the country’s financial regulator, and their May 28 launch on the London Stock Exchange, low trading volumes have been seen in UK crypto exchange-traded notes backed by ether and bitcoin.

Only professional investors are allowed to trade the products, unlike U.S. exchange-traded funds. According to one of the issuers, 21Shares, bringing them up to the retail market would be a game changer.

21Shares provides four ether-backed and four cross-listed bitcoin products in the UK. WisdomTree manages two Bitcoin ETNs and two Ethereum ETNs, and Invesco offers two bitcoin-backed products. Crypto ETNs that offer exposure only to ether or bitcoin need to be listed on the London Stock Exchange (LSE), physically backed, and non-leveraged.

As of June 6, the combined turnover for all products since inception is barely $504,880, with WisdomTree making up 59% of the trading volume and 21Shares 41% of it. 21Shares data indicates that there has been no trading volume in Invesco goods thus far. 

By contrast, Trading volume for spot Bitcoin ETFs in the US was $2.5 billion on Friday alone.

The trading volumes of WisdomTree’s four cryptocurrency products in the UK are comparable thus far. The Ethereum products from 21Shares, on the other hand, have been more successful and account for 76% of its trading volumes.

In that time, trading activity for 21Shares’ Ethereum Staking ETPs has increased by almost 57% compared to its Core Ethereum product, which does not offer a staking reward.

The data presented indicates that among the crypto ETNs listed on the LSE, 21Shares’ products retain the narrowest levels in terms of average daily spread. 

The spread is a crucial indicator of the cost of trading and the liquidity of the available products. It is the average difference between the bid (buy) and ask (sell) prices of an ETN over the course of a trading day.

It’s not just the LSE that offers trading

Professional traders will usually trade over-the-counter, buying and selling financial products directly with another party using the most liquid exchange available or through official exchanges like the LSE, according to 21Shares.

The low trading volumes were expected, according to 21Shares UK Head Alex Pollak, who said that while the FCA opening up the UK market to professional investors is a huge step in the right direction, these products are also cross-listed, which means the financial instruments are listed and traded on multiple exchanges across different countries or regions.

According to Pollak, professional investors will trade on the exchanges with the highest liquidity, which are now Deutsche Börse Xetra. The benchmark market for exchange trading in European ETPs and German shares is Xetra. In July 2020, 21Shares started offering cryptocurrency ETPs on Xetra.

However, Pollak noted that several wealth and private banking platforms are now actively examining how they may either offer or add ether or bitcoin allocations to professional client portfolios as a result of the FCA and LSE’s “stamp of approval.” 

He stated, “Once the platforms finish their onboarding process, we do expect to see more trading volume.”

We still believe that this asset class has advanced significantly with the FCA’s approval for professional investors in the UK, and we expect the retail sector to open up eventually. Pollak says this will be a game changer.

Other managers of cryptocurrency assets concur

According to Michael Delew, Head of Capital Markets at WisdomTree, there was not much initial trading for these cross listings. He added that this was to be expected since the products are only accessible to professional and institutional investors.

Institutional investors in the UK could already access physically backed cryptocurrency ETPs on other European exchanges and over-the-counter (OTC) marketplaces, where they have been traded with healthy daily volumes since 2019, according to Delew.

Delew concurred with Pollak that the development signifies a noteworthy advancement in the legitimacy and significance of the asset class for investors in the United Kingdom. The approval of the FCA may lead to increased institutional adoption in the future, thereby eliminating regulatory uncertainties and obstacles.

More and more investors intending to allocate are taking note to institutional-grade crypto ETPs that are 100% physically backed, ease of trading, transparency, and public listing on a regulated market permitted by the UK regulator, according to Delew.

James Butterfill, Head of Research at asset manager CoinShares, said that there are a number of reasons why the numbers are low. First, in order to deter retail investors, the ticket sizes—or minimum investment amounts—are high. This means that UK listed products are losing out on a significant potential, yet the FCA has imposed these limits because they think retail isn’t smart enough to make investments.

Second, institutional investors in the UK have relatively little knowledge compared to the rest of Europe. As a result, they have either already been able to invest in the larger, more liquid European ETPs or have opted not to do so.

Currently unavailable in the UK, CoinShares provides crypto exchange-traded products throughout Europe.

The UK’s regulatory environment

The FCA has adopted a cautious approach to the cryptocurrency market in an effort to protect investors and promote innovation. The FCA outlawed the sale of exchange-traded products and derivatives to individual investors in 2021. But since then, the UK’s position on cryptocurrency legislation has changed.

The FCA originally signaled in March that it would not refuse requests for cryptocurrency ETNs from accredited investors. Subsequently, the London Stock Exchange declared its intention to start receiving applications for Bitcoin and Ethereum ETNs in Q2, with trading of crypto ETNs starting on May 28. 

These products, however they use a somewhat different financial structure than a straight ETF, provide exposure to the price swings of ether and bitcoin.

Unlike U.S. spot Bitcoin ETFs, ETNs do not directly hold the underlying assets they represent. Rather, ETNs are financial institution-issued debt securities that guarantee to pay the bearer a return that is equal to the asset’s performance less fees and expenditures.

Is the UK going to see Bitcoin ETFs?

Retail investors in the UK currently encounter additional obstacles that keep them from making direct investments in U.S. spot Bitcoin ETFs. The main obstacle is that the securities laws in both nations do not always jibe with one another to facilitate cross-border transactions.

The CEO of Coinbase UK, Daniel Seifert, has stated that the UK is making progress with the introduction of cryptocurrency ETNs. In response to a question on whether he would support the availability of Bitcoin ETFs in the UK, Seifert said, “I think more choice for consumers is always good.”

Bivu Das, the UK managing director of Kraken, is one of the individuals who is upbeat about the prospects of Bitcoin ETFs in the country, highlighting the significance of these financial instruments in offering regulated investment options to a wider range of investors.

Das clarified in March that since the UK banned these items in 2021, a lot has changed in the world.

Disclaimer : This article was created for informational purposes only and should not be taken as investment advice. An asset’s past performance does not predict its future returns. Before making an investment, please conduct your own research, as digital assets like cryptocurrencies are highly risky and volatile financial instruments.

Author: Lalit Mohan

Leave a Reply