[focus-text-wrap]Key Takeaways[/focus-text-wrap]
- The governments of the U.K. and the U.S. have agreed to establish a new “Transatlantic Taskforce for Markets of the Future.”
- The taskforce will drive closer collaboration on crypto policy and capital markets.
- Retail crypto exchange-traded notes are set to return to the U.K. in October.
Amid a renewed focus on technology collaboration, the U.S. and the U.K. have agreed to establish the “Transatlantic Taskforce for Markets of the Future.”
The proposed taskforce is expected to bring the two nations into closer alignment on digital asset policy at a time when the U.K. market is tentatively opening up to crypto investments via its first BTC-tracking Exchange Traded Notes (ETNs) set to launch in October.
Transatlantic Taskforce for Markets of the Future
Announced on Monday, Sept. 22, the new taskforce is intended to “enhance collaboration on capital markets and digital assets,” the U.K. government said in a statement .
On the digital assets front, the taskforce will focus on short-to-medium term collaboration “whilst legislation and regulatory regimes are still developing.” Beyond that, the two nations will explore more long-term partnership opportunities.
Apart from crypto, it will also look at ways to improve links between capital markets on both sides of the Atlantic, easing the flow of investment across borders.
Taken together, the two strands of the agreement point to closer alignment of crypto investment frameworks, where the U.K. currently diverges from the U.S.
Crypto Investment Products in Europe vs. the US
For investors seeking crypto exposure in a regulated investment vehicle, Europe has generally taken a different path than the U.S., favoring ETNs over Exchange-Traded Funds (ETFs).
While ETFs are structured to segregate the underlying assets, legally speaking, ETNs are unsecured debt instruments.
For crypto-based notes, European asset managers do hold the equivalent collateral, but in the event of insolvency, investors are just another creditor, with none of the guarantees offered by the ETF structure.
Despite this risk, crypto ETNs have proliferated across European markets, with some of the largest vehicles amassing assets worth more than $1 billion.
The most popular venues for crypto ETNs today include Germany’s Deutsche Börse Xetra, SIX Swiss Exchange, and Euronext.
However, they have been absent from Europe’s largest bourse, the London Stock Exchange, since the Financial Conduct Authority(FCA) banned them in 2021.
Crypto ETNs in the UK
When it initially restricted firms from issuing crypto-tracking derivatives, the FCA cited the risk of financial crime, market volatility, inadequate understanding by retail investors, and “the inherent nature of the underlying assets, which have no reliable basis for valuation.”
The effect of the ban was sweeping. Issuers like XBT Provider (now part of CoinShares) and ETC Group pulled their products from the London Stock Exchange. And although asset managers continued to offer crypto ETNs to professional investors, retail investors in the U.K. have been excluded.
On Oct. 8, however, the FCA will lift its embargo, reflecting its wider shift to accommodate crypto as it prepares to regulate the sector.
BlackRock is already lining up to list a Bitcoin ETN on the London Stock Exchange, and the top brass at Wisdom Tree and 21Shares have signalled their interest in doing the same.
Where the U.K. goes next remains to be seen.
One potential outcome of closer transatlantic collaboration on digital asset policy would be to allow spot crypto ETFs, paving the way for cross-listing of popular U.S.-domiciled funds in London.
While it would lower investment barriers with the U.S., such a goal would be ambitious and is unlikely in the short-term. Not only would it run counter to years of regulatory precedent, it would also threaten shared investment frameworks the U.K. already has with the EU.
