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After the US’s financial regulator allowed trading of cryptocurrency securities this year, the UK has become the second financial market to follow suit. The London Stock Exchange, on Monday, notified the launch of a market for bitcoin (BTC) and Ethereum (ETH) exchange-traded notes (ETN) on May 28.

While the issuer applications will still require the UK regulator’s approval, acceptance of crypto instruments in traditional financial markets is a powerful driver of positive investor sentiment, experts said.

ET explains LSE’s notification and other developments supporting cryptocurrency markets in recent times.

What are exchange-traded notes?

ETNs are unsecured debt instruments issued by financial institutions whose performance is linked to a specific asset such as an index, currency or commodity and now even cryptocurrencies.

When you invest in an ETN, you’re essentially buying a promise from the issuer to pay you the return that a specific asset would generate, thus, exposing you to the credit risk of the issuer.

These are different from crypto exchange-traded funds (ETFs) listed in the US, which represent shares of ownership in a fund, which holds a basket of crypto securities. ETFs don’t carry credit risk because they represent ownership in a fund that holds assets. The value of the ETF is tied to the value of those underlying assets, in this case, Bitcoin and Ethereum.

January 2024 was a landmark moment in the history of cryptocurrency trading when the US SEC approved 11 crypto funds including Grayscale, Fidelity, Bitwise and Franklin to be traded on US bourses. It allowed investors to hold Bitcoin instruments directly instead of relying on futures contracts.

Meanwhile, the LSE, on Monday, said it will invite applications from issuers of crypto ETNs who wish to trade their securities on the London bourse which shall be subject to the approval of their financial regulator.

What does it mean for investors?

Since then the crypto market has been on a rally, with total market capitalisation breaching the $2 trillion mark and BTC prices touching new all-time highs.

Experts believe LSE’s approval will further accelerate the growth momentum.

“Acceptance of crypto from the traditional financial markets is always a powerful driver of growth,” said Raj Karkara, COO, ZebPay.

“While the launch of ETNs still awaits the approval of the UK regulator, it is certainly another feather in the cap for the crypto landscape, hopefully continuing the positive trajectory of the current market sentiment.”

Jyotsna Hirdyani, South Asia Head at Bitget said the development adds another layer of legitimacy to the cryptocurrency market and is indicative of growing institutional interest and acceptance of cryptocurrencies.

As for India, the crypto “retail market has shown incredible resilience despite the high capital gains tax on Crypto, and it continues to grow,” Zebpay’s Karkara said.

  • Published On Mar 28, 2024 at 06:20 PM IST

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