The London Stock Exchange (LSE) will begin trading bitcoin and ether exchange-traded notes (ETNs) next Tuesday, May 28, allowing investors to gain exposure to cryptocurrency performance without actually holding the cryptocurrencies.
But what exactly are bitcoin and ether ETNs, and how will the approval of these financial products impact the cryptocurrency market?
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According to the LSE, ETNs track the performance of underlying assets such as bitcoin or ether and are traded and settled like normal shares. They benefit from market maker support with guaranteed liquidity, enabling investors to trade on-exchange during London hours.
ETNs can also be held in individual savings accounts (ISAs) or self-invested personal pensions (SIPPs) and, if held directly, are eligible for capital gains tax treatment in the UK.
Impact on the cryptocurrency market
The debut of bitcoin (BTC-USD) and ether (ETH-USD) exchange-traded notes (ETNs) on the London Stock Exchange (LSE) marks another milestone for the cryptocurrency market, providing a new avenue for investors to gain exposure to these digital assets without holding them directly.
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ETNs track the performance of underlying assets such as bitcoin or ether, allowing for a more traditional investment approach with the benefit of guaranteed liquidity. This structure is particularly appealing to institutional investors who might be wary of directly handling cryptocurrencies due to security and regulatory concerns.
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The introduction of bitcoin and ether ETNs on the LSE is expected to positively impact the price action of both cryptocurrencies. As ETNs can be held in ISAs and SIPPs, they become accessible to a broader range of investors, thereby increasing demand.
This heightened demand, coupled with the legitimacy brought by listing on a major exchange like the LSE, could lead to upward price pressure on bitcoin and ether. Moreover, the market maker support ensuring liquidity means that investors can enter and exit positions more easily, potentially reducing volatility and encouraging more stable growth in the prices of these digital assets.
The approval and trading of ETNs on the LSE signals growing acceptance and integration of digital assets into traditional financial markets. This integration not only adds a layer of legitimacy but also attracts more institutional and retail investors, further driving market growth.
The ETNs will not be immediately available to retail investors, only professional investors will be able to access them. However, this phased approach by the UK’s Financial Conduct Authority (FCA), starting with professional investors, paves the way for eventual broader access, which could catalyse further adoption and investment in cryptocurrencies.
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