Bitcoin
EU considers crypto integration into $12.88 trillion market
Europe’s securities regulator is seeking input from interested parties on the potential inclusion of crypto assets in a potentially massive market. The European Securities and Markets Authority (ESMA), the regulatory authority responsible for supervising financial markets in the European Union, recently initiated a comprehensive review of the regulations surrounding the Eligible Assets Directive (EAD) of Undertakings for Collective Investment in Securities Securities (UCITS). .
This measure could potentially allow the integration of cryptocurrencies into a vast investment market valued at approximately 12 billion euros (around 12.88 billion dollars). On May 7, 2024, ESMA released a call for evidence seeking input from multiple stakeholders to assess the feasibility and implications of allowing UCITS to include a wider range of asset classes, including cryptocurrencies.
The UCITS framework, fundamental to EU retail investment, represents around 75% of all retail investment in collective funds in the region. With its global reputation for strict regulation and investor protection, the inclusion of cryptocurrencies could represent a transformative change in the investment landscape.
The Next Big Catalyst for Crypto?
ESMA’s review aims to address the evolving financial landscape, where the number and variety of financial instruments have expanded significantly since the UCITS framework was established almost two decades ago. This expansion has led to uncertainty in determining asset eligibility, causing divergent interpretations and applications of the Directive between Member States.
Sean Tuffy, an expert in financial regulation, highlighted the importance of this development for DL News, stating: “If ESMA is convinced, it would be the final step in the integration of crypto assets in Europe”, referring to this as a potential “game changer”. This sentiment is shared by industry experts who believe that the inclusion of crypto assets could provide a robust alternative to traditional investment options, potentially increasing portfolio diversification and returns.
Call for Evidence targets a broad audience, including investors, consumer groups, UCITS management companies, UCITS self-managed investment companies, depositories and trade associations. These interested parties are invited to share their ideas on market practices, interpretative issues and practical application concerns related to the eligibility criteria and other provisions of the EAD UCITS.
One of the critical areas of focus is the cross-cutting coherence of the main notions and definitions used in the UCITS EAD with other legislative acts of the EU Single Rulebook. This alignment is crucial to ensure that any new asset classes, such as cryptocurrencies, are integrated smoothly and consistently across regulatory frameworks.
Andrea Pantaleo, a lawyer specializing in cryptocurrency regulation, highlighted several potential benefits and challenges. He told DL News: “UCITS funds have specific investment limitations depending on the type of assets. We will not have a 100% crypto UCITS fund, but we expect that many investment funds will be able to hold 1-2% of their liquidity in crypto.”
However, he also pointed out a significant obstacle: coordination of custody regulations, which must be aligned with the future EU Regulation on Markets in Cryptoassets (MiCA). MiCA must establish strict rules for the segregation of assets and policies for their custody, which will be fundamental in the custody of cryptographic assets.
The potential inclusion of cryptocurrencies in UCITS comes at a time when other major economies, such as US It is Hong Kong, have started to integrate crypto assets into their financial products, mainly through the approval of Bitcoin ETFs. These developments have not only validated the financial viability of cryptocurrencies, but also stimulated significant investment flows into the sector.
ESMA’s consultation process is expected to conclude on 7 August 2024, after which the watchdog will compile feedback and develop its technical advice to the European Commission. This advice will play a crucial role in determining whether cryptocurrencies will be included in the UCITS framework, potentially heralding a new era for cryptocurrency investment in Europe.
At press time, the total crypto market value was $2.202 trillion.
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