Attractiveness of Bitcoin and Ethereum ETNs in the London Stock Exchange
Recently, newly listed bitcoin and ethereum exchange-traded notes (ETNs) have made their way to the London Stock Exchange (LSE), aiming to attract investors. However, these ETNs are struggling to gain inflows due to the lack of institutional demand, as stated by crypto ETP providers.
LSE Latecomer in the Crypto Market
One of the key reasons behind the slow adoption of crypto ETNs on the LSE is the late entry of the exchange into the crypto market. Comparing it to other platforms like Xetra German Electronic Exchange, which has more liquidity, the lack of interest in LSE-listed ETNs is evident.
- Products restricted to professional investors under FCA regulations
- FCA bans retail consumers from investing in crypto derivatives and ETNs
- No local retail interest due to the FCA ban
Lack of Institutional Demand
There seems to be a general lack of institutional interest in crypto ETNs, which is a major factor contributing to the low trading volumes on the LSE.
- Institutional investors drive significant trading volumes in traditional financial markets
- Potential limited UK institutional adoption and demand for crypto ETNs
- Institutional investors like hedge funds and pension funds are not actively trading crypto ETNs
Regulatory Uncertainty Impact
Regulatory uncertainty is another significant factor affecting the inflows into newly listed crypto ETNs on the LSE. The complex and evolving regulatory landscape around cryptocurrencies can deter investors from actively trading these assets.
- Concerns about potential changes in regulations may limit trading activity
- Saturated European market for ETPs in Germany, Switzerland, and France
- Competition from existing EU investment vehicles diverting trading activity
Market Maker Support Crucial for Crypto ETNs
Market maker support plays a vital role in ensuring liquidity and efficient trading of financial products like ETNs. The availability of sufficient market makers and authorised participants is essential for the success of crypto ETNs.
- Flow Traders are the main market makers for these products
- Limited market maker support can impact liquidity and trading efficiency
- Presence of only one market maker and a few authorised participants
Hot Take: Conclusion on Bitcoin and Ethereum ETNs
Overall, despite their potential, bitcoin and ethereum ETNs listed on the London Stock Exchange are facing challenges in attracting investors, primarily due to factors like regulatory uncertainties, lack of institutional demand, and market maker support. These issues need to be addressed to enhance the appeal and trading volumes of crypto ETNs on the LSE.
Sources:
1. Financial Conduct Authority (FCA)
2. Issuance Swiss AG
3. Flow Traders
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