Regulation
EU plans to integrate crypto into massive $13 trillion market
The European Union is ready to experience a major financial revolution. It plans to include crypto assets in its $12.88 trillion mutual fund framework, the Undertakings for Collective Investment in Transferable Securities (UCITS).
This bold initiative could radically transform the investment landscape across Europe. It can surpass the scale of spot Bitcoin exchange-traded funds (ETFs) in the United States.
Tipping point for crypto integration under $13 trillion EU mutual funds
The European Securities and Markets Authority (ESMA), the bloc’s financial markets watchdog, has begun an in-depth review. This initiative aims to expand Eligible UCITS assets will potentially include crypto. Additionally, the authority seeks input from industry stakeholders to assess the risks and benefits of such integration.
Globally, financial markets are gradually adopting cryptocurrencies. ESMA’s proactive attitude is therefore timely. THE The United States and Hong Kong recently approved Bitcoin ETFs, indicating a shift towards traditional financial entities engaging in crypto. For example, BlackRock ETF and Grayscale saw significant inflows, sparking a strong Bitcoin rally in early 2024.
Since their implementation in 2007, the current EAD rules have remained unchanged despite the significant increase in the variety of instruments traded in financial markets during this period.
“This has given rise to varying interpretations and market practices regarding the application of the UCITS Directive, which could raise concerns about investor protection.” » said EMSA.
Unlike in the United States, where ETFs focus on specific assets and require individual approvals, UCITS funds could cover multiple cryptocurrencies without separate approvals.
Value of total net assets of UCITS in Europe in the 1st quarter of 2023. Source: Statist
Investors invested more than €5 trillion in equity assets out of the total €12.4 trillion held in UCITS across Europe. This influx is expected to significantly change the dynamics of the crypto market.
However, this process comes with several challenges. A major concern is custody. Crypto requires special custody arrangements, which could conflict with existing regulations for traditional fund custodians. The EU is actively developing the Regulation of crypto-asset markets (MiCA), which sets strict rules on the separation and conservation of assets, to address these concerns.
Learn more: What are Markets in Crypto Assets (MiCA)?
Stakeholder feedback is crucial at this stage. ESMA actively seeks to align any policy updates with the primary objective of UCITS, namely investor protection. The ongoing review, open for comments until August 7, 2024, will decide whether cryptocurrencies meet strict UCITS eligibility criteria.
Furthermore, ESMA’s efforts to broaden asset classes and standardize definitions aim to ensure uniformity across the EU financial landscape.
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