European digital assets exchange-traded products have previously been structured as exchange-traded notes rather than funds. However, Europe’s first bitcoin exchange-traded fund (ETF) is set to be publicly listed this month, after experiencing a 12-month delay. Jacobi Asset Management, the firm behind the ETF, initially planned to launch it on Euronext Amsterdam in July 2022.
However, due to concerns stemming from the Terra Luna cryptocurrency crash in May 2022 and the collapse of the crypto exchange FTX in November, the launch was postponed. Now, Jacobi Asset Management has stated that the ETF is “on track” to launch this month, citing a shift in demand since last summer.
ETF shareholders hold a stake in the underlying shares of a fund, while ETN investors own debt security rather than the actual assets themselves.
Jacobi, the company behind the ETF, has emphasized the distinction between launching an ETF and an exchange-traded note.
Peter Lane, co-founder, and chief operating officer of Jacobi, expressed concerns last year about the misuse of the term ETF by ETN issuers. He criticized the dissemination of misinformation and the potential obfuscation of risks associated with acquiring and investing in ETNs.
Jacobi has highlighted that its ETF, unlike ETNs, does not involve leveraging or the use of derivatives, mitigating the potential for significant counterparty risk.
The bitcoin fund has obtained authorization in Guernsey, a jurisdiction that offers several advantages to facilitate the launch of such a fund. According to David Crosland, a partner at offshore law firm Carey Olsen, Guernsey is a specialist fund servicing jurisdiction that operates independently from the inflexibilities associated with EU membership. This independence enabled Guernsey to swiftly adapt and provide support for the ETF launch.
Crosland further noted that Guernsey’s flexibility and willingness to comprehend intricate details allowed the fund promoter to establish a regulated fund vehicle. This regulatory status sets it apart from European jurisdictions that are unable to offer similar opportunities.
Bitcoin’s Analysis in Europe
According to Michael O’Riordan, a founding partner at Blackwater Search and Advisory, the regulatory obstacles involved in launching a bitcoin ETF in Europe are significant due to bitcoin not being considered an eligible asset under Ucits rules. However, O’Riordan points out that, in practice, the ETF and ETP (exchange-traded product) are quite similar, with only some structural differences. He acknowledges that the industry has not done a good job in clearly distinguishing between the two, leading to confusion in the market.
Data from Coinbase and Bloomberg reveals that European digital assets ETPs have seen net flows of $483 million over the past 18 months, including $398 million of inflows in the third quarter of 2022.
Based on an analysis of Morningstar data by Ignites Europe, the total value of assets in European digital assets ETPs is currently €4.3 billion. However, these assets reached their highest point at the end of 2021, reaching €10.5 billion.