Crypto Unlocked: In the bleak midwinter - Page 32

Chapter 6 : Digital asset regulation

Will crypto ETPs ever be UCITS-compliant ?

Crypto assets can now be found in ETFs and some UCITS funds but are yet to be regulated under the coveted UCITS brand
Author : Jamie Gordon
The debate about crypto exchange-traded products ( ETPs ) being regulated under UCITS has intensified this year after the asset class appeared with an ‘ ETF ’ label for the first time in Europe and was targeted by new cross-border regulation and even the world ’ s largest asset manager BlackRock .
After gaining regulatory approval in Guernsey last October , Jacobi Asset Management announced it would launch the Jacobi Bitcoin ETF ( BCOIN ) in July , marking the first bitcoin exposure in an ETF structure this side of the pond .
From a technical perspective this is interesting . While Europe ’ s other exchange-traded crypto products are exchange-traded notes ( ETNs ) – legally structured as debt instruments – Jacobi AM worked with the Guernsey Financial Services Commission ( GSFC ) to create what is known as a new protected cell company ( PCC ).
In this context , Jacobi ’ s PCC houses fund ‘ cells ’ such as BCOIN , which are equivalent to sub-funds in a fund platform . Investors are then able to buy units of each cell which correspond to a predetermined physical sum of the desired exposure , in this case bitcoin .
Peter Lane , co-founder as COO of Jacobi AM , said the ETF structure is subject to greater regulatory scrutiny and may be more appealing to institutional clients who do not want the counterparty risk typically associated with ETNs .
However , BCOIN does bear structural similarities to its wrapped crypto peers , given many ETNs are also entirely physically collateralised and do not lend out their underlying .
Another similarity prompting critics to call BCOIN ’ s ETF label a marketing ploy rather than precedent-setting is the fact it is not UCITS compliant , meaning like ETNs it does not enjoy the same
distribution passporting , investor protection or eligibility benefits as UCITS ETFs .
Being accepted by the trusted UCITS framework as standard would no doubt be a vote of confidence for the maturity of the asset class , however , crypto has already made some inroads into the regulatory framework , just not in ETF format .
UCITS means different things to different regulators
Unfortunately for crypto ETP issuers , the main locations for domiciling funds , Ireland and Luxembourg , still exclude direct exposure to digital assets in UCITS products on a “ prudential basis ”, even if they might be suitable based on the written rules of UCITS , according to Townsend Lansing , head of product at CoinShares .
Luxembourg ’ s Commission de