Bloomberg reports that the UK’s financial regulator, the Financial Conduct Authority (FCA), has authorized the first cryptocurrency exchange-traded products (ETPs), which is a significant step forward in the UK’s strategy for investing in digital assets.
Stock markets allow investors to buy and sell ETPs, which are a kind of security. Investors may get exposure to several asset classes without actually holding the underlying assets via exchange-traded products (ETPs) that follow the performance of a particular index, commodity, currency, or other benchmark. A variety of structures, including exchange-traded funds (ETFs), exchange-traded notes (ETNs), and exchange-traded commodities (ETCs), may include ETPs.
One subset of ETPs, exchange-traded funds (ETFs) combine a variety of assets—including stocks, bonds, and commodities—into a single investment vehicle. The investing strategy of exchange-traded funds (ETFs) is to attempt to match the performance of an existing index or benchmark. A key component of an exchange-traded fund (ETF) is the ownership of the underlying assets by the fund’s shareholders. Generally speaking, exchange-traded funds (ETFs) are subject to the rules and regulations imposed on investment companies by the investment business laws. Furthermore, if the underlying assets of an ETF provide income, then investors will get dividends.
In terms of structure and scope, ETPs and ETFs are fundamentally different. Exchange-traded products (ETPs) cover a wide range of exchange-traded assets, not only funds. In addition to money and goods, they might also include commodities. Although exchange-traded funds (ETFs) are a subset of ETPs with an investment fund structure, other ETPs, such as exchange-traded notes (ETNs), are debt securities that banks issue.
Whereas ETFs are subject to the rules governing investment funds in general, other forms of ETPs, such ETNs, could be subject to rules governing other kinds of investments. In addition, being debt instruments, ETNs are subject to the issuer’s credit risk, whereas ETFs are not since they directly own the assets they invest in. Additionally, since ETNs do not own the underlying assets directly, they are unable to pay dividends to investors, in contrast to ETFs.
According to Bloomberg, WisdomTree Inc. has announced today that it has acquired FCA clearance to list two physically-backed crypto ETPs on the London Stock Exchange. These ETPs will follow Bitcoin and Ether. The anticipated start of trade for these items is 28 May 2024.
The UK has received listings applications from a number of additional issuers of cryptocurrency products, such as CoinShares, ETC Group, and 21Shares. Among the companies slated to participate in the first round of trading on the permission date were WisdomTree, 21Shares, and Invesco Digital Markets Plc, whose names were on the FCA’s approved list as of Wednesday noon.
The FCA has imposed strict regulations on these items notwithstanding this development. Expert only investors may purchase the physically backed Bitcoin and Ether ETPs offered by WisdomTree. This limitation is more stringent than in the US, where the market has grown substantially since January due to the authorization of spot Bitcoin ETFs. According to Bloomberg, the combined assets under management of these ETFs in the US reach $59 billion, which is approximately five times more than the total assets under management of comparable crypto vehicles listed in Europe.
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