Amid Bitcoin’s recent price surge and growing investor interest, the London Stock Exchange (LSE) has announced its plan to start accepting applications for the admission of Bitcoin-backed Exchange Traded Notes (ETNs) in the second quarter of 2024.
ETNs, defined as debt securities offering exposure to an underlying asset, enable investors to trade securities tracking digital assets during London trading hours. This move by the LSE will provide professional investors with a new avenue to engage with the burgeoning asset class, marking a significant milestone in the integration of bitcoin into traditional financial markets.
Exchange Traded Notes: 3 Primary Criteria for Approval
According to a statement released by the exchange on Monday, there are three primary criteria that any proposed notes must meet, including being non-leveraged and backed solely by bitcoin. Secondly, the custodian or custodians responsible for holding the assets must adhere to anti-money laundering regulations in the UK, European Union, Jersey, Switzerland, or the United States.
Moreover, the proposed notes are also required to hold at least 90% of bitcoin in an offline depositary wallet or “subject to arrangements that achieve an equivalent outcome to cold storage”
Notably, the application process for these bitcoin-backed ETNs will kick off in the second quarter of the year, with the exact launch date to be confirmed subsequently.
The Massive Success of Bitcoin Spot ETFs
The announcement comes amid a bullish run for bitcoin, which recently surpassed the $71,000 mark for the first time, recording a staggering rally of nearly 70% this year. This surge was mainly fueled by substantial inflows into the recently-launched US spot bitcoin Exchange-Traded Funds (ETFs).
As per the latest data by BitMEX Research, on Friday, spot ETFs collectively witnessed a net inflow of $199 million.
Notably, investors have injected over $11 billion into new Bitcoin ETFs launched in the US over the past two months, triggering a widespread surge in the digital asset markets.
Strictly for Professional Investors
The LSE emphasized that it will accept applications in accordance with a factsheet previously published, with early engagement encouraged from prospective issuers. It stated in the admission factsheet:
“In order to mitigate the risk of delay in the admission timetable, the Exchange encourages early engagement from prospective issuers interested in admitting Crypto ETNs to trading on the Exchange.”
However, the LSE clarified that these digital-asset ETNs will be exclusively available for professional investors, as stipulated in the admission factsheet.
FCA’s Greenlight
In parallel, the Financial Conduct Authority (FCA) of the UK has stated its non-objection to proposals from Recognized Investment Exchanges (RIEs) to establish a listed market segment for digital-asset-backed ETNs.
Despite this development, the FCA remains steadfast in its stance that bitcoin ETNs and derivatives are unsuitable for retail consumers due to associated risks. This cautious approach underscores ongoing regulatory scrutiny and the need for investor protection.
The LSE’s decision underscores the increasing convergence of bitcoin and mainstream finance. Its plans to facilitate the trading of Bitcoin-backed ETNs reflects a broader trend of traditional financial institutions embracing digital assets.
