The UK, in another crypto-friendly development, has decided to merge its traditional regulated market with crypto. Starting May 28, the London Stock Exchange (LSE) will launch exchange traded notes (ETNs) for Bitcoin and Ether. It is notable, that these ETNs will only be made available to professional investors and traders. With this, the UK has again portrayed itself as a lucrative destination for crypto businesses and investors. At present, the crypto sector is worth $2.60 trillion – carving it as a new entrepreneurial sector with evident potential upon which the UK wishes to capitalise on.
The London Stock Exchange will accept applications for Bitcoin and Ethereum ETNs from 8 April 2024, said an official market notice posted by the LSE on March 25.
What are crypto ETNs?
UK’s Barclays Bank had created the concept of ETN as an investment vehicle back in 2006. Their aim was to ease the process of investing and maximising returns around commodities and currencies for retail investors by leveraging the debt, credit system.
An ETN is issued by a bank as an unsecured debt security. It can track an index of securities and its price is linked to how this index performs. In LSE’s case, these indexes would be Bitcoin and Ether – both of which are currently surging in prices pushing the crypto sector on its ongoing bull run.
ETN issuers pay ETN holders the return on an index over a certain period of time. The principal of the investment is also returned to the investor upon the ETN’s maturity – that could be up to 10 to 30 years.
ETNs were invented to meet investor needs. ETN investors are only required to pay taxes on their investments if they make any profits.
ETNs are not monitored by a board of directors and carry credit risk. In addition, ETNs are less liquid and may contain holding-period risk during which the indexes can suffer volatility and cause loss to the investor.
LSE’s ETN Roadmap
Financial institutions that are looking to launch ETN on the LSE have been given some rules to adhere to by the UK government.
All crypto ETNs, for instance, are mandated to be backed by a physical commodity. The underlaying BTC and ETH assets linked to these ETNs must be provided by a custodian that has an Anti-Money Laundering license issued in the US, UK, or the EU, LSE’s — said the Crypto ETN Admission Factsheet by the LSE.
“Crypto ETNs enable investors to trade securities which track crypto assets, on-exchange, during London trading hours. Crypto ETNs are traded on their own dedicated trading segments and are settled through EUI (Euroclear UK & Ireland) or Euroclear Bank & Clear Stream Bank (ICSD),” the LSE noted.