The introduction of cryptocurrency-backed exchange-traded notes for professional investors was allowed by Britain’s financial watchdog on Monday. The regulator is the latest to permit digital asset products while attempting to protect retail investors.
The Financial Conduct Authority (FCA) stated in a statement that only investment firms and credit institutions authorized to operate in financial markets will have access to these products, which are bonds issued by financial institutions that follow the performance of underlying assets.
It stated that the FCA will not be lifting its prohibition on cryptocurrency exchange-traded notes (ETNs) or derivatives for retail investors, citing them as “ill-suited” due to “the harm they pose”.
In a separate statement released on Monday, the London Stock Exchange said that it will begin accepting applications in the second quarter of this year for the entrance of ether ETNs and bitcoin.
After the U.S. Securities and Exchange Commission (SEC) approved spot bitcoin exchange-traded funds, the cryptocurrency market saw a sharp increase in value. The SEC called the token a “speculative, volatile asset that’s also used for illicit activity” and advised investors to exercise caution.
Due to the inflow of capital into bitcoin ETFs and the anticipation that the U.S. Federal Reserve will soon lower interest rates, bitcoin reached a record above $70,600 on Monday.
The FCA stated that experienced investors may more accurately determine if cryptocurrency ETNs match their risk tolerance with “greater insight and data from a longer period of trading history.” It said that exchanges ought to guarantee investor protection and orderly trade.
But the FCA reiterated its earlier cautions, stating that cryptocurrency was “high risk and largely unregulated” and that investors may “lose all their money.”
The FCA’s stance on cryptocurrencies and retail investors, according to Jake Green, global head of financial regulatory at law firm Ashurst, is “in a state of flux.”
The idea that “retail investors may purchase crypto in the form of a financial instrument which FCA regulates” is obviously something the watchdog does not want to get close to.
