Crypto ETNs listed on the London Stock Exchange (LSE) are struggling to attract inflows, primarily due to a lack of institutional interest, according to providers of crypto ETPs.
In May, 21Shares introduced four new physically-backed crypto exchange-traded notes (ETNs) on the LSE, including the 21Shares Bitcoin ETN, 21Shares Ethereum Staking ETN, 21Shares Bitcoin Core ETN, and the 21Shares Ethereum Core ETN. WisdomTree also listed a Bitcoin and Ethereum ETN in May, while Invesco launched the Invesco Physical Bitcoin ETP on the LSE with a total expense ratio of 0.39%.
Crypto ETNs track the performance of underlying assets like bitcoin or ether and are traded and settled similarly to regular shares.
The slow uptake of these new crypto products can be attributed to the fact that they are only available to professional investors, as per regulations set by the Financial Conduct Authority (FCA). HANetf co-founder and co-CEO Hector McNeil believes that the LSE is lagging behind other markets like the Xetra German Electronic Exchange, which have more liquidity.
Moreover, the FCA’s ban on retail investors accessing these products has also contributed to the lack of interest. McNeil hopes that the FCA will reconsider its stance on complex ETPs to create a more vibrant local market.
One of the main reasons for the low trading volumes of crypto ETNs on the LSE is the lack of institutional demand, according to Laurent Kssis. Institutional investors, such as hedge funds and asset managers, are key drivers of trading volumes in traditional financial markets.
Regulatory uncertainty surrounding cryptocurrencies and related investment products, as well as competition from existing EU investment vehicles, are also factors affecting the inflow of capital into these crypto ETNs. Market maker support, provided by companies like Flow Traders, is crucial for maintaining liquidity and efficient trading in these products.
Overall, the market for crypto ETNs on the LSE is facing challenges due to a combination of factors, including regulatory restrictions, lack of institutional demand, and competition from other investment options in Europe and the US.