UK Crypto ETN Market Heated by Retail Access and Slashed Fees

A significant transformation is taking place in the UK’s cryptocurrency exchange-traded note (ETN) market, as regulators have reopened avenues for retail investors for the first time in over four years. This strategic shift has triggered a fierce price war among leading issuers, resulting in dramatic fee reductions for bitcoin-linked products, now available for as low as 0.05%, a rate that surpasses those of many traditional equity and bond funds.

FCA’s Regulatory Reversal Sparks Investment Opportunities

On October 8, the Financial Conduct Authority (FCA) lifted its ban on retail investment in crypto ETNs. This policy reversal signifies a critical change in the regulator’s approach to digital assets. The decision allows retail investors to purchase and hold London-listed crypto ETNs that track the prices of popular cryptocurrencies such as bitcoin and ether within tax-free accounts, including stocks-and-shares ISAs for the current tax year. Starting April 6 next year, these products will also qualify for the Innovative Finance ISA, further enhancing their appeal.

The reopened access has ignited fierce competition among issuers vying for investors’ attention.

Who Will Emerge Victorious in the Fee War?

In response to this regulatory change, Bitwise was one of the first to act, announcing a slashing of its annual fee for the Core Bitcoin ETP from 0.2% to 0.05%, effective for an initial six-month period, with an extension option. This drastic reduction undercut rival firm 21Shares, which promptly lowered fees for its Core Bitcoin and Ethereum Core Staking ETPs to 0.1%.

Fidelity wasn’t far behind, reducing fees on its Physical Bitcoin ETP to 0.25%, while Invesco brought its product down to 0.1%, set to remain until the end of 2025. BlackRock, a heavyweight in the U.S. crypto ETF arena with its $92 billion iShares Bitcoin Trust, has also made its entry into the UK market by listing its European iShares Bitcoin ETP in London, offering a temporary fee discount from 0.25% to 0.15% until early next year. Meanwhile, CoinShares continues to captivate the ether segment with its Physical Staked Ethereum ETP, uniquely offering zero management fees through the offset of costs generated from staking rewards.

Will London’s Crypto ETN Surge Mimic the U.S. ETF Fever?

This intense fee competition mirrors the aggressive landscape seen in the U.S. marketplace following the launch of crypto ETFs in early 2024. Analysts believe that these fee reductions could ultimately provide a more affordable mechanism for investors to gain exposure to bitcoin through regulated funds than through traditional investment vehicles.

Despite the promise of lower costs, some crypto ETNs previously designated for professional investors are still charging upwards of 2.5% annually, underlining the divide between legacy products and new, low-cost contenders. Subsequently, trading volumes surged post-resumption of retail access. According to Bitwise, the average daily trading volumes for Bitcoin ETNs on the London Stock Exchange spiked to $7.2 million from just $2.1 million earlier in October, when access was restricted to professional investors. Ether ETNs mirrored this trend, rising from $1.9 million to $4.4 million.

Russell Barlow, CEO of 21Shares, noted, "The surge in activity reiterates the exceptional level of appetite for exposure to these assets." As more issuers enter the UK market, competition is expected to further diversify the product offerings and lower costs for investors.

Regulatory Cautions in the Wake of New Offerings

Despite the upbeat market conditions, the FCA has issued both encouragement and caution to issuers. In a recent statement, the regulator advised firms against providing incentives to lure investors, stressing the importance of conducting rigorous appropriateness assessments. They also mandated cooling-off periods and clear risk warnings, reiterating that crypto ETNs remain high-risk instruments not safeguarded under the Financial Services Compensation Scheme.

While platforms including Interactive Investor, Trading 212, Killik & Co., and Interactive Brokers have begun granting retail access, major investment brokers like Hargreaves Lansdown and AJ Bell have yet to introduce crypto ETNs. Hargreaves Lansdown has notably taken a wary stance, cautioning clients about integrating Bitcoin into their portfolios, labeling it "not an asset class," although it aims to enable trading for "appropriate clients" by early 2026.

The FCA’s decision to open up the market is a pivotal moment for the UK’s crypto sector, long criticized for its regulatory sluggishness. The regulator has recently ramped up approvals for crypto firms, achieving a 45% acceptance rate and issuing licenses to notable institutions such as BlackRock and Standard Chartered.

Market research by IG Group indicates that the new retail access could potentially witness a 20% expansion in the UK’s crypto investment landscape, with nearly one in three adults showing interest in purchasing digital assets through ETNs. Interest is particularly strong among younger investors aged 18 to 34, who cite regulation, safety, and tax efficiency as attractive features.

In conclusion, as the market intensifies and costs plummet, the ensuing battle among ETN issuers could reshape the investment landscape for cryptocurrencies in the UK, presenting both exciting opportunities and inherent risks for retail investors.

[Source: Cryptonews]