The Securities and Exchange Commission approved the applications of several spot bitcoin ETFs last week, a move long-awaited by the cryptocurrency industry, which had seen previous attempts to launch these products shot down by the regulator.
Eleven spot bitcoin ETFs, including BlackRock’s iShares Bitcoin Trust, Grayscale Bitcoin Trust, the WisdomTree Bitcoin fund and ARK 21Shares Bitcoin ETF, began trading last Thursday (11 January).
Despite the decision being described by many as a “watershed moment”, some players have approached the move with caution. Vanguard, the world’s second largest ETF provider, said it would not make spot bitcoin ETFs available on its platform.
‘Watershed moment’ for crypto as SEC approves 11 spot bitcoin ETFs
UK and European investors are not currently able to invest in spot bitcoin ETFs, as these markets require funds unique from the US-listed vehicles, due to the latter’s lack of a Key Investor Document.
Despite the SEC’s approval of the products in the US, investment platforms have raised doubts over whether the UK regulator would follow a similar path, given the FCA’s 2021 ban of the sale of crypto-derivatives, including exchange-traded notes.
Danny Cox, head of communications at Hargreaves Lansdown, said that given the state of play and the risks the “crypto wild west” poses, it is “highly unlikely” the watchdog will follow the SEC’s move and approve these ETFs for UK investors.
“We have always treated crypto products with caution and been vocal with our concerns,” he said. “Bitcoin may be gaining more legitimacy, but it is still showing all the hallmarks of a troublesome teenager. It is an unpredictable and volatile investment that could drain your bank account.”
In its guidance, the FCA said that anyone losing money in crypto was unlikely to be able to access to the UK Financial Services Compensation Scheme or the UK Financial Ombudsman Service for these investments.
A spokesperson for AJ Bell told Investment Week the firm would not speculate on potential UK approval, given the current uncertainty of what form it may take if it does happen.
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However, AJ Bell head of investment analysis Laith Khalaf argued the UK regulatory landscape is shifting, with crypto activities being brought under the supervision of the FCA, which he said may pave the way for crypto ETFs “at some point in the future”.
“If or when that might happen is anyone’s guess,” he said. “The FCA is walking a bit of a tightrope here between keeping consumers safe and the government’s ambition to make the UK a global hub for cryptoasset technologies.”
Fidelity’s personal investing platform told Investment Week the firm would continue to monitor developments and decide what is right for customers, if and when such an investment is approved.
Under the FCA’s Consumer Duty, investment platforms have become more cautious about the range of funds and securities they make accessible to retail investors, as they act to deliver good outcomes and better consumer protection across financial services.
Even if the sale of spot bitcoin ETFs was approved in the UK, direct-to-consumer platforms would likely be “very reticent” about allowing retail access to ETFs investing in a “highly speculative” asset, argued Jason Hollands, managing director at BestInvest.
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“[It] might require some form of appropriateness assessment,” he said. “But that is something to be considered in the future should these ever launch in the UK.
“It is not a decision for today.”
Wealth managers are also approaching cryptocurrencies with caution. Darius McDermott, managing director at Chelsea Financial Services, said the firm has not placed any digital assets within its managed portfolios and maintains “a watching brief”.
“We believe, for most investors, ETFs reduce the complexity of self-custody wallets that can be hacked, or owners can lose the keys and seed phrases,” he said. “Crypto exchanges have proven to be very poor, or outright fraudulent, custodians.”
However, McDermott said bitcoin remains a “largely speculative” asset that can be “unpredictable and volatile”, and one that is difficult to accurately place a value on.
