Regulation
EU plans to add crypto to €12 trillion investment market bigger than Bitcoin ETFs – DL News
- The EU securities watchdog is asking stakeholders whether it should include crypto assets in investment products.
- The UCITS mutual fund framework is worth 12,000 billion euros.
- According to experts, this inclusion could be a game-changer for crypto.
The European Union’s securities watchdog is asking stakeholders whether it should include crypto assets in investment products – a move that could allow crypto to tap into a larger market than bitcoin spot exchange traded funds.
The European Securities and Markets Authority is ask industry and experts to contribute to the expansion of eligible assets in the network – called Undertakings for Collective Investment in Transferable Securities, or UCITS.
This decision opens the door to wider access to cryptocurrencies via UCITS, a 12 trillion euros walk.
If ESMA is convinced, it would be “the final step towards the integration of crypto assets in Europe,” said financial regulation expert Sean Tuffy. DL Newscalling it a potential “game changer.”
This follows US and Hong Kong regulators approving Bitcoin ETFs this year, highlighting the extent to which traditional financial players are moving into crypto.
In the United States alone, funds managed by BlackRock and Grayscale each returned approximately 18 billion dollars since January – becoming a key driver of the Bitcoin rally in the first quarter of 2024.
However, approval is not a hopeless conclusion.
August deadline
The call for contributions from ESMA stakeholders is open until August 7.
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“The impact would be greater than that of U.S. ETFs,” said Andrea Pantaleo, a crypto regulation and litigation attorney at DLA Piper. DL News.
“Because there could be many fund compartments interested in investing small percentages of cash in cryptoassets.”
What are UCITS?
There are several reasons why access to mutual funds could prove a boon for the sector.
UCITS investments are made up of many different categories of funds which are allocated different assets based on their risk and profile.
There is another way in which the European framework could benefit crypto: “Authorization is not required for every time a fund invests in crypto-assets, and this would also benefit market liquidity,” he said. Pantaleo said.
In the United States, ETFs are based on unique assets that regulators must 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 limits depending on the type of assets,” Pantaleo said. “We will not have 100% crypto UCITS funds, but we hope 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. EU asset managers 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 might be custody,” Pantaleo said, as regulations on custodian banks should be coordinated with custody of cryptoassets.
The European bloc will roll out its legal framework for crypto over the coming years, known as the Regulation of Markets in Crypto-Assets, or MiCA. For custodians, MiCA establishes asset segregation rules and custody policies.
Crypto assets involved in mutual funds would likely have to comply with the same rules.
To this end, ESMA also requested specific comments on how the addition of specific cryptocurrencies to the framework would or would not be affected by MiCA.
“The process of updating the rules on UCITS eligible assets is not rapid and will be subject to much negotiation,” Tuffy said.
“We have a long way to go before we know whether crypto will be allowed in mutual funds.”
Inbar Priess is a regulatory correspondent at DL News. Do you have any advice? Send him an email to inbar@dlnews.com.