It’s taken five years, but the Financial Conduct Authority’s consultation to lift the ban on cryptoasset exchange traded notes (ETNs) for retail investors is better late than never.
While retail investors in the UK have been locked out of regulated crypto ETNs products since 2020, retail investors in Switzerland, Germany and the EU have had access to crypto ETNs as early as 2018.
Meanwhile the United States’ Securities Exchange Commission approved Bitcoin ETFs in January 2024 to much fanfare and since then, over $150bn in assets have flowed into US-listed crypto ETFs, with the vast majority coming from retail investors.
The FCA is coming around to the long-accepted legitimacy of crypto ETNs, and that can only be a good thing for the government’s ambition to be a global crypto hub.
According to the FCA’s own research, retail awareness and interest in crypto has grown significantly. Since the ban, crypto ownership among UK adults has tripled, from 4% to 12%.
Nearly 70% of those purchases were made through centralised exchanges, many of which are unregulated. The FCA itself labelled Binance as “not capable of being effectively supervised”.
We also know that around 80,000 UK-based investors were exposed to the collapse of FTX. These losses happened outside the regulatory perimeter the FCA seeks to protect, so the risks of this shadow market are not theoretical.
In short, limiting access hasn’t deterred interest, rather it has pushed investors to platforms that the FCA can’t oversee.
Although volatility in crypto persists, the market has matured significantly in recent years . Bitcoin, for example, is gradually establishing itself as a component of the traditional financial ecosystem.
Indeed, Bitcoin’s historical volatility has fallen from an annualised rate of 130% five years ago to 30% today and the world’s largest asset manager BlackRock recommends a 1-2% allocation to Bitcoin in diversified portfolios.
Our own research shows that, as investors seek to diversify their portfolios with alternative assets, a bitcoin holding of between 4% and 10% has historically improved risk-adjusted returns in modelled scenarios and could have a positive impact in the future.
If the FCA finally lifts the retail ban, UK retail investors would have access to crypto ETNs that are regulated, listed in on the LSE,centrally cleared, custodied by FCA-approved entities,and subject to prospectus and transparency rules. Most importantly, they wouldn’t have to invest directly via offshore crypto exchanges.
It’s about more than just improving retail investor protection; it would help to reconnect a generation of savers with UK capital markets.
Bringing crypto-curious investors into regulated exchanges increases the chance they’ll explore broader investment opportunities, from equities to ETFs. Crypto may be the hook, but the benefit is a more engaged and diversified investor base.
The FCA has said it wants the UK to be a global crypto hub. But a hub that restricts access to its own population won’t lead. It will follow. Britain risked falling behind the US and EU on regulated crypto access and missing out on the growth that the government has so craved.
The consultation on crypto ETNs is more than a regulatory detail; it is a litmus test for whether the UK is prepared to match words with action. Is the UK serious about allowing capitalising on crypto, becoming a leading hub and allowing its citizens to share in the benefits?
British investors have made clear they want crypto exposure and denying them access through regulated, transparent products hasn’t dampened that demand.
Clearly, as Europe’s largest digital asset manager with $8.5bn under management, we are fully in favour of bringing London into the 21st century of investment and we plan to play a full and active role in this new market if it is opened up.
Jean Marie Mognetti is CEO of CoinShares
