In Samuel Beckett’s play Waiting for Godot, the two main characters, Vladimir and Estragon, spend two acts sitting by a tree, expecting the arrival of the titular Godot, who (spoiler alert!) never makes it. Those of us who are interested watchers of the cryptocurrency market might see some familiar parallels.
Crypto’s entry to the mainstream has long been trumpeted, but it’s never quite happened. Bubbles have repeatedly formed and burst, and many people have been burnt along the way. However, in January this year, the US Securities and Exchange Commission (SEC) approved the first US-listed ETFs to track the spot price of bitcoin.
The approvals mean US retail investors now have a regulated way to invest in bitcoin through their brokerage accounts, gaining exposure to the price without having to hold the complex and unregulated cryptocurrency itself. Last month, the US regulator also approved the sale of spot ether ETFs by certain exchanges, although no products have been approved as yet.
US investors have been able to invest in crypto futures ETFs since 2021, but they can now gain a ‘purer’ price exposure through exchange-traded funds (ETFs) backed by direct holdings of the relevant digital currencies. The news has driven a strong crypto price rally amid expectations that a new set of buyers will now get onboard.
Green shoots
Is this the gamechanger the market’s been waiting for? And what are the implications for those who manage or advise on client money here in the UK?
Last month, the Financial Conduct Authority (FCA) approved the UK’s first spot bitcoin and ether exchange-traded products (ETPs), with WisdomTree, 21Shares and Invesco all getting the go-ahead for London Stock Exchange listings of their crypto offerings. These products are structured as exchange-traded notes (ETNs) rather than ETFs – a structure already used widely across mainland Europe, where ETPs have been available to both professional and retail investors for several years.
In the UK, though, the ban on the sale of crypto products to retail investors remains firmly in place, with the regulator citing “the harm they pose”. Alongside its decision to allow the creation of a UK-listed market segment for crypto-backed notes, the FCA issued a reminder that crypto assets are “high risk and largely unregulated” and that investors “should be prepared to lose all their money”.
Read the rest of this article in the July/August issue of Portfolio Adviser magazine