Bitcoin
EU mulls adding crypto into €12 trillion investment market, bigger than Bitcoin ETFs – DL News
- The EU securities watchdog is asking interested parties whether it should include crypto assets in investment products.
- The UCITS mutual fund framework is worth 12 billion euros.
- The inclusion could be a game changer for crypto, experts say.
The European Union’s securities watchdog is asking interested parties whether it should include crypto assets in investment products – a move that could allow crypto to tap a larger market than spot Bitcoin exchange-traded funds.
The European Securities and Markets Authority is Asking industry and experts to provide information on the expansion of assets eligible for the network – called Undertakings for Collective Investment in Securities, or UCITS.
The move opens the door to broader access to cryptocurrencies via UCITS, a 12 billion euros Marketplace.
If ESMA is convinced, it would be the “final step in the integration of crypto assets in Europe”, said financial regulation expert Sean Tuffy. DL Newscalling it a potential “game changer.”
This comes on the heels of US and Hong Kong regulators approving Bitcoin ETFs this year, highlighting how traditional financial players are investing in crypto.
In the US alone, funds managed by companies like BlackRock and Grayscale each raised around US$18 billion since January – becoming one of the main drivers of Bitcoin’s recovery in the first quarter of 2024.
However, approval is not a desperate conclusion.
August deadline
The call for ESMA stakeholders to participate is open until 7 August.
Join the community to receive our latest stories and updates
“The impact would be more significant than US ETFs,” said Andrea Pantaleo, a lawyer specializing in crypto regulation and litigation at DLA Piper. DL News.
“Because there may be many pools of funds interested in investing small percentages of liquidity in crypto assets.”
What are UCITS?
There are several reasons why access to UCITS could prove to be an advantage for the industry.
UCITS investments are made up of many different categories of funds that have different assets allocated to them depending on their risk and profile.
There is another way the EU framework could benefit crypto: “Authorization is not required every time a fund invests in crypto assets, and this would also benefit market liquidity,” said Pantaleo.
In the US, ETFs are based on unique assets that regulators need to authorize.
But in Europe, UCITS investment funds can allocate liquidity to more crypto assets without obtaining prior authorization for each one.
“UCITS funds have specific investment limitations depending on the type of assets,” said Pantaleo. “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.”
Although investors can trade Bitcoin exchange-traded products in the EU, they have not been as popular as their US counterparts. Asset managers in the EU already offer ETPs that behave like ETFs.
Obstacles
But there is still a long way to go before crypto assets are potentially included in the framework.
“The only issue could be custody,” said Pantaleo, as regulation on depository banks should be coordinated with custody of crypto assets.
The EU bloc is implementing its legal framework for crypto over the next few years, known as the Markets in Crypto-assets Regulation, or MiCA. For custodians, MiCA establishes rules for asset segregation and custody policies.
Crypto assets involved in UCITS would likely need to comply with the same rules.
To this end, ESMA also requested specific feedback on how the addition of specific cryptocurrencies to the framework would or would not be affected by MiCA.
“The process of updating the UCITS-eligible asset rules is not quick and will be subject to a lot of negotiation,” said Tuffy.
“We have a long way to go before we know whether crypto will be allowed on UCITS.”
Inbar Priess is a regulatory correspondent for DL News. Have a tip? Email her at inbar@dlnews.com.