Representations of bitcoin
Issuers will be able to apply to list notes that are linked to the bitcoin and ethereum coins on the London Stock Exchange from April © Reuters

The UK’s financial regulator will allow some bitcoin-linked securities to be listed on the stock market, in a softening of its tough stance on digital assets as investors around the world snap up funds investing directly in cryptocurrencies.

The Financial Conduct Authority said on Monday it would “not object” to the creation of bitcoin and ethereum-backed exchange traded notes for professional investors.

Issuers can apply to list notes that are linked to the bitcoin and ethereum coins on the London Stock Exchange from April. ETNs are debt securities that track an underlying asset but are traded and settled through a central market entity like a stock exchange and securities depository.

The news helped push bitcoin and ethereum higher. Bitcoin, the world’s largest cryptocurrency, hit $72,000 for the first time while ethereum touched $4,000 for the first time since December 2021.

The UK had become one of the last major markets to hold out against the trading of crypto-related securities, even though the government has been championing the country as a potential centre for digital asset markets.

In 2021 the FCA banned crypto-related derivatives, which included exchange traded products, owing to concerns over the amount of leverage, or borrowing, available to consumers. Some operators offered as much as 100 times leverage on bitcoin.

The ban — which also covered unleveraged securities — has drawn sharp criticism from members of the crypto industry, who argue that the UK cannot become a leading market for digital assets unless retail investors are given regulated and easy routes into popular tokens such as bitcoin.

“Bitcoin is by far the most well-known crypto asset, and for it to be very difficult for the UK public to be able to buy it, how can we claim to be a crypto hub if we only offer risky ways of buying this asset?” said Tim Lowe, strategic adviser at London-based institutional staking firm Attestant. 

Regulators in other major markets have become increasingly comfortable with investors buying crypto-linked securities, as long as the securities are in a regulated product.

At the start of the year the US approved spot bitcoin ETFs, following countries in the EU, Australia and Canada. Hong Kong has also signalled it will approve ETNs. The newly approved group of US spot bitcoin ETFs, including ones issued by BlackRock and Fidelity, have collectively pulled $10bn since their launch in January, according to crypto investment group CoinShares.

“With increased insight and data due to a longer period of trading history, the FCA believes exchanges and professional investors should now be able to better establish whether crypto-ETNs meet their risk appetite,” the regulator said in a statement.

It continues to believe “that crypto derivatives are ill-suited for retail consumers due to the harm they pose. As a result, the ban on the sale of ETNs . . . to retail consumers remains in place.”

The LSE said that securities behind the ETNs could not be leveraged. They must be kept in an offline storage vault and held by custodians subject to anti-money laundering rules in the UK, EU, Jersey, the US and Switzerland.

Copyright The Financial Times Limited 2024. All rights reserved.
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