United Kingdom’s Financial Conduct Authority (FCA) has proposed a ban on crypto ETNs. The agency believes that these Exchange Traded Notes (ETNs) harm consumers and hence need to be removed from the markets.
Crypto ETNs vs. FCA
The agency believes that the assets are very complicated and have little transparency regarding their values. Therefore retail investors that lack an in-depth understanding of the subject are often harmed by crypto ETNs. The gap between investor understanding and asset detail creates a disparity between the expected and actual risk of loss. This is further compounded by the lack of transparency that adds to the illusion of gains while hiding the potential setbacks.
The watchdog pointed at Coinshares’ Bitcoin and Ethereum ETNs, saying that these are listed on the Nordic Nasdaq and have over ten thousand (11000), clients. These clients have collectively invested almost one hundred million pounds (£97M) before February this year. The agency estimated that the company’s assets have increased by five folds in this year.
Regardless, it is unclear what percentage of those investments belonged to UK residents. The agency has reached out to Coinshares but is yet to receive a response. On the other hand, Coinshares is calling on crypto enthusiasts to respond to the Financial Conduct Authority.
ETNs are being lumped together with Contracts for Difference (CFDs) that can be leveraged up to 500x. Crypto ETNs, on the other hand, cannot be leveraged and hence profit and gains remain under a specific range. In simple words, ETNs are just a round-about way of buying Bitcoin since the company claims that the notes are fully backed by Bitcoins.
Nonetheless, crypto ETNs come under Exchange Traded Products (ETPs) which are under the jurisdiction of FCA. The FCA considers them a threat and wants to impose a ban on them. FCA claims that crypto ETNs have caused loss of around forty million pounds between June 2017 and December 2018.
Whether FCA imposes a ban on these crypto ETNs remains to be seen. On the other hand, the agency’s US equivalent – the Securities and Exchange Commission (SEC) – allows both Bitcoin and Ethereum ETNs to be traded in the United States.