In another crypto-friendly development, the UK has decided to integrate its traditional regulated market with digital currencies. The London Stock Exchange (LSE) will launch Exchange Traded Notes (ETN) for Bitcoin and Ether on May 28th. It should be noted that these Etns are only available to professional investors and traders. This once again gives the impression that the UK is a desirable destination for cryptocurrency companies and investors. The cryptocurrency sector is now worth $2.6 trillion and has emerged as a new entrepreneurial sector with clear potential that the UK is looking to capitalize on.
According to an official market announcement from the LSE on March 25, the London Stock Exchange announced that it will accept applications for Bitcoin and Ethereum ETNs from April 8, 2024.
What is a Crypto ETN?
Barclays Bank in the UK developed the concept of ETNs as an investment vehicle in 2006. Their goal was to facilitate the investment process and maximize returns for retail investors in commodities and currencies using a debt and credit system.
ETNs are issued by banks as unsecured debt instruments. It can track an index of securities and its price depends on the performance of this index. In the case of the LSE, these are Bitcoin and Ether, both of which are currently rising in price, continuing the upward trend in the crypto sector.
The ETN issuer pays ETN holders the return of the index over a certain period of time. The invested capital will also be refunded to the investor depending on the term of the ETN, which can be a maximum of 10 to 30 years.
ETNs were invented to meet the needs of investors. ETN investors only have to pay taxes on their investments if they make a profit.
ETNs are not overseen by a board of directors and are therefore subject to credit risk. In addition, ETNs may be illiquid and subject to index volatility during the holding period, potentially resulting in losses to investors.
LSE ETN roadmap
Financial institutions considering opening an ETN on the LSE must comply with a number of UK government rules.
For example, all crypto ETNs must be backed by physical goods. The underlying BTC and ETH assets associated with these ETNs must be provided by a custodian with an anti-money laundering license issued by the LSE in the United States, the United Kingdom or the European Union and the LSE Crypto ETNs became. This is stated in the admission information sheet.
The LSE said: “Crypto ETNs enable investors to trade securities tracking crypto assets on London exchanges during London trading hours. Crypto ETNs are traded on their own trading floor and in Ireland or with Euroclear Bank and Clearstream Bank (ICSD).”
