Lukewarm Launch: UK’s Bitcoin ETNs Off to Slow Start

The recent introduction of Bitcoin and Ethereum-backed exchange-traded notes (ETNs) shows a major regulatory shift in the UK’s extensive trading market. However, the low volume of purchases raises concerns about market enthusiasm. The London Stock Exchange (LSE) may lag behind its global counterparts.

The crypto ETNs that started trading on the London Stock Exchange saw a lackluster performance, raising questions about demand.

On May 28, a number of crypto ETNs made their debut on the LSE, including those from WisdomTree, 21Shares, and Invesco. The debut followed the firms’ announcement last week that they had got approval from the Financial Conduct Authority (FCA) to list their ETPs.

However, initial trading activity for the newly introduced ETNs fell short of expectations. According to Charlie Morris, founder and chairman of investment adviser ByteTree, 21Shares’ funds have not been popular.

No Love In London?

Compared to the debut of spot Bitcoin and Ethereum exchange-traded funds (ETFs) in Hong Kong, the UK’s crypto ETNs might not come as a surprise. These Asian-first ETFs also reported a bumpy start with low trading volumes.

Similarly, Canada’s Purpose Spot Bitcoin ETF was far from a success. As of May 28, Canada’s Purpose Spot Bitcoin Fund saw its holdings decrease from nearly 50,000 BTC to around 27,000 BTC.

In other European markets, digital asset ETFs have been available for years. But it was not until the US spot Bitcoin ETFs secured approval in January that the cryptocurrency ETF market started to grab attention.

US spot Bitcoin ETFs have achieved major success. BlackRock’s iShares Bitcoin Trust (IBIT) itself also broke the previous record of other prominent ETFs, becoming the fastest to reach $10 billion.

Yesterday, IBIT surpassed Grayscale Bitcoin Trust to become the world’s largest Bitcoin fund. The milestone came almost five months after both ETFs started trading. As of May 28, IBIT had $19.68 billion in assets under management, according to Bloomberg.

A Multi-Decade Move

For experts, the lukewarm debut of these ETNs was not in contrast with their expectations. Morris said the peculiar nature of the launch occurred without prior announcement or significant public relations efforts.

He also noted that these new offerings are indeed “existing German and Swiss Bitcoin ETFs that have been around for quite a long time.”

There is hope among market observers for the future approval of crypto ETNs in the UK.

Alex Pollak, Head of UK for 21Shares, mentioned that the UK’s Financial Conduct Authority (FCA) aims to gradually open the UK crypto market by approving the listing of Bitcoin and Ether ETNs on the London Stock Exchange (LSE).

“I think the fact that these products will now be available on the London Stock Exchange does show progress and I think within three years from now the UK will be home to the largest crypto exchange-traded fund market in Europe,” he said.

Previously, the FCA had a tough stance on crypto asset-backed exchange traded products (ETPs) due to their high volatility.

In 2021, the FCA implemented a ban on the sale of crypto-related derivatives, including ETPs, to retail investors, citing concerns about the inherent value, volatility, and association with financial crime of cryptocurrencies.

Earlier this year, the financial watchdog was reportedly open to revising its stance regarding ETNs for professional investors. Still, the FCA has maintained that crypto derivatives are unsuitable for retail consumers due to the risks they pose, and the ban on the sale of ETNs to retail consumers remains in place.

Despite introducing ETNs, the FCA has restricted access to regulated financial investors, excluding retail traders. This decision contrasts with markets like the US, where retail investors can access similar crypto investment products easily.

Following the launch of spot Bitcoin ETFs, spot Ethereum funds recently got the regulatory nod to be listed in the US. Trading of those funds, however, is still pending review.