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The FCA has lifted the ban on retail
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access to cryptocurrency exchange traded
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notes. Now, there's lots of confusion
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out there about what this really means
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for UK investors. So, City A.M. have
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pulled together the most commonly asked
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questions found online and had 21 Shares
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come in to clear things up.
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Here we go. Thank you. Okay. UK
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investors can now access crypto via
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ETNs. But, what is an ETN? An ETN is an
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exchange traded note. It's like an ETF
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in that it trades on traditional stock
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exchanges like the London Stock
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Exchange. ETN issuers, like 21 Shares,
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hold the underlying asset, let's say
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Bitcoin or Ethereum, with a regulated
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custodian, and that's how they deliver
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the return of the product. Why should
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retail investors buy a listed crypto ETN
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versus holding directly? Big question.
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There are many advantages to buying
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crypto through an ETN versus direct
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ownership. The first of these would be
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security. When you invest in crypto
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directly through an online platform, you
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either have to hold the crypto on
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exchange, remember FTX, or you're going
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to have to manage your own crypto
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wallet, which can be more complicated.
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Remember the guy in Wales whose hard
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drive ended up getting thrown out in the
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rubbish? The second would be costs.
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Investing in crypto directly can be
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really expensive. When you go through
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one of these online platforms or apps,
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you're going to see trading fees and
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you're going to see spreads. Spread
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being the difference between the price
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that you pay and the price that you see
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on screen. When you add these together,
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they can be upwards of 4%. Buying crypto
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through an ETN can be far more
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cost-effective because you're paying the
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issuer the management fee and benefiting
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from their scale and access to liquidity
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and cheap trading. Most investors want
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to have all of their investments in one
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place to manage their portfolios.
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Investing in crypto directly will mean
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that you're going to have to open new
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accounts with online crypto brokerages.
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And they'll be separate from your
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traditional investments. Crypto ETNs,
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because they can be bought through a
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traditional broker, mean that you can
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have all of your positions in one place.
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Are all crypto ETNs the same?
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The short answer is no, they're not all
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the same. On the face of it, they can
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look very similar. And all crypto ETNs
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trading on the London Stock Exchange
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today have been through a very similar
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process of approval with prospectuses
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signed off by the FCA and often other
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European authorities. But, under the
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hood, the way that an issuer manages the
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liquidity, deals with the custody, and
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the operations of the ETN can vary
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greatly. What's important is to choose
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an issuer that has been there from the
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beginning, been through market cycles,
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seen the bull markets, seen the bear
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markets, and understands the risks
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involved. With Bitcoin and Ethereum ETNs
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now available, how might investors start
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incorporating them into broader
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portfolio strategies alongside stocks,
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bonds, or other assets? Well, for most
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investors, crypto ETNs or any crypto
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investment is going to make up a modest
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part of the portfolio. Of course, the
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sizing is going to depend on the risk
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appetite of the investor, but what we
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found is that a 5% allocation to Bitcoin
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can have a meaningful impact on the
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risk-adjusted returns of a traditional
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portfolio without increasing the risk.
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What are the potential risks? There are
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many positives to crypto ETNs, but we
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also need to look at the risks. Crypto
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ETNs are still complex, high-risk
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products. First is extreme market
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volatility. The prices of
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cryptocurrencies can swing violently,
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meaning the investment's [music] value
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can drop just as rapidly as it rises.
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Second is issuer and counterparty risk.
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[music] An ETN is essentially a debt
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You don't own the underlying crypto even
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though the product is backed by it. The
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investor is heavily reliant on the
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issuer's [music] financial health and
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their ability to securely manage the
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custody and the liquidity of the
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underlying crypto. And finally,
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crucially, these investments are not
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covered by the Financial Services
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Compensation Scheme or the Financial
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Ombudsman Service. Do you expect there
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will be more crypto assets beyond
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Bitcoin and Ethereum available to UK
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>> Yes. The way the FCA has written the
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guidelines, the eligible assets are
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determined by the London Stock Exchange.
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We expect UK investors will have a much
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broader access and opportunity set,
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similar to that in Europe, over the
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years to come. In Europe, 21 Shares
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already offers more than 50 products on
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the market. European investors have
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benefited from a wide range of
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investment opportunities over the last
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few years. In the UK, we're just getting
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started. Over the coming years,
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>> we think that UK investors should and
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will have access in a similar way to
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Europeans. The UK government is very
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focused on encouraging investment and
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innovation in the country. Part of that
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is encouraging new investment in new
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technologies, where of cryptocurrency
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and blockchain are front and center. And
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finally, if you want to find out more
5:01
about what we do at 21 Shares, there's a
5:03
link in the description and a QR code
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