After years of anticipation and more than 20 rejected applications, the United States Securities and Exchange Commission has finally approved a series of spot Bitcoin exchange-traded funds (ETFs) for trading on American exchanges. These ETFs buy and hold Bitcoin directly, tracking the leading cryptocurrency’s price one-to-one.
ETF Funds and the European Union
Previously, only Bitcoin futures ETF funds were available in the United States. They tracked the performance of Bitcoin futures contracts, not the actual price of the cryptocurrency, and did not hold spot Bitcoin. The newly approved spot ETF funds provide both institutional and individual investors with a regulated and convenient way to invest in Bitcoin without the complexity of direct purchase and storage. As regulated products, these ETF funds are subject to SEC oversight and adhere to the same rules that regulate behavior for investment funds and their providers and managers.
Access to Bitcoin and other cryptocurrencies remains relatively complex for investors in Europe. Individual trading platforms and investment platforms like Bison, Bitpanda, and eToro offer suitable entry points, but their suitability is limited for larger investors or those seeking traditional structures.
Due to the Directive on Undertakings for Collective Investment in Transferable Securities (UCITS), an ETF that invests only in Bitcoin and thus only in one asset will not be approved in Europe. One of the directive’s objectives is to protect investors from total financial losses. These safety measures also require diversification of European fund products and prevent excessive investment in a single asset class or product.
Therefore, investors looking to participate in the crypto market in EU countries must rely on alternative products. In Europe, these products include Bitcoin exchange-traded notes (ETNs), which are in the same category as ETF funds and are often backed by physical Bitcoin. Several European investment firms, such as 21Shares, VanEck, ETC Group, and Deutsche Digital Assets (DDA), offer these types of alternative investments to Bitcoin in the form of ETNs.
Insights from a Prominent Figure
Dominik Poiger, the head of product at Deutsche Digital Assets GmbH, commented on the matter, stating that a clear advantage of ETNs is that they can be easily bought and sold on exchanges like Deutsche Börse’s Xetra, Euronext Amsterdam, or SIX Swiss Exchange, and investors are already familiar with the concept of exchange-traded products. He further explained:
“These products can later be seen as an allocation in a securities account and thus easily used for portfolio diversification. The packaging of a fully collateralized debt instrument is also well known to commodity investors, so it’s a move in familiar territory.”
However, from a legal standpoint, ETNs do not have the same legal protection as ETF funds. Poiger mentioned that in the event of an issuer’s bankruptcy, client funds may not be separable from the bankruptcy estate. To address this concern, some providers continue to implement numerous security measures, including using regulated crypto custody trustees, independent security trustees, and internal governance mechanisms.
