What are Cryptocurrency ETNs (Exchange Traded Notes)?

If you want to trade cryptocurrencies like Bitcoin and Ethereum without actually owning Bitcoin and Ethereum, you can use an exchange-traded note (ETN) if you want the security of trading an on-exchange product.

The advantage of these trackers is that if you don’t want leverage and don’t want to deal with the messy business of actually owning cryptocurrencies you can still get leverage. You can also deal in smaller trade sizes.

However, there are currently no UK-listed crypto ETFs, ETNs, or ETPs that are accessible to UK retail clients.

Indeed, it’s only in recent weeks that the lilies of Invesco and Wisdom Tree, etc, received permission to launch crypto ETFs/ ETNs for professional clients in the UK.

Even here, the products are pretty vanilla and will be over spot Bitcoin and Ether.

One such fund is the iShares Bitcoin ETP, the fund aims to track the price performance of spot Bitcoin and is backed by Physical Bitcoin held in custody by Coinbase International.

The fund is priced in USD and uses the CME CF Bitcoin Reference Rate as its benchmark, the values for which are published daily at 4 pm London time.

The fund has an expense ratio of 0.15% per annum. This fund is also traded on three European markets in Germany, France and the Netherlands, and has been for some time. The French listing has a daily average volume of 86,000 shares.

For now, it’s a case of watch this space at least until the consultation process closes, but don’t expect fireworks from the FCA, which often moves at a glacial pace in these matters.

If you do want to trade crypto stocks on leverage, you can trade them through DMA CFDs and still go short.  It’s important to note, though, that ETNs are different to ETFs in that they are underwritten by banks rather than assets, so are subject to additional risk that can affect pricing.

The UK FCA considers opening the Crypto ETN Market to Retail Investors

The Financial Conduct Authority has announced it’s considering reversing its longstanding prohibition on marketing crypto exchange-traded notes, or ETNs, to individual investors in the UK.

This marks a significant policy shift from the regulator, which cracked down on the trading of all and any crypto derivatives by UK retail traders in January 2021.

Under the proposed changes, retail investors would gain access to crypto ETNs traded on FCA-recognised investment exchanges, bringing the UK in line with other European markets, where these products are already available to many private clients.

How might the FCA proceed?

The FCA’s proposal maintains consumer safeguards through its financial promotion rules, and the need  for comprehensive risk disclosures

David Geale, the executive director of payments and digital finance at the FCA, emphasised the regulator’s intent to:

“Rebalance our approach to risk, while acknowledging the potential for total capital loss.”

A selective liberalization

The proposed changes are quite specific:

While they would open up crypto ETN access to retail investors, the FCA will maintain its existing ban on OTC crypto derivatives for individual consumers.

Though it is not immediately clear what the regulators’ views on exchange-traded crypto derivatives will be going forward.

This selective approach suggests the regulator sees ETNs as offering more manageable risks when compared to leveraged/OTC derivatives products.

Though, of course, not all exchange-traded products are created equal, and there are plenty of idiosyncrasies within the ETF, ETN  and ETP universe.

Which means that you should never assume that any two products are the same, and always do your due diligence as to exactly how they work

What is the broader regulatory context?

This development forms part of the FCA’s comprehensive crypto roadmap, which includes recent consultations on stablecoins and custody requirements.

The regulator has been building a regulatory framework that’s supposedly designed to foster innovation while maintaining market integrity.

This is being undertaken in parallel with efforts to reduce regulatory burdens across the financial services sector.

Alongside the crypto ETN proposals, the FCA  recently announced plans to streamline fund reporting requirements and eliminate redundant data collection obligations, potentially cutting down on the compliance costs of industry participants.

What are the market implications?

The proposed changes could accelerate institutional interest in UK-listed crypto products and potentially attract international crypto firms seeking regulatory clarity.

By allowing retail access to crypto ETNs, the UK positions itself as a more welcoming jurisdiction for crypto innovation compared to some European counterparts.

However, the success of these measures will likely depend on the final details and the market’s appetite.

The FCA’s continued emphasis on consumer protection suggests that any approved products will still face a mix of rigorous oversight and disclosure requirements.

The  FCA has proposed a consultation period that will run at least until July and perhaps longer. And that should provide the opportunity for feedback from both industry and consumer perspectives.

However, don’t hold your breath for a quick decision, as some sources are suggesting the regulator won’t issue its final guidance until early 2026.