After years of anticipation and numerous rejected applications, the United States Securities and Exchange Commission has finally given the green light for spot Bitcoin exchange-traded funds (ETFs) to be traded on American stock exchanges. These ETFs directly track the price of Bitcoin by purchasing and holding the cryptocurrency, providing both institutional and retail investors with a regulated and convenient way to gain exposure to Bitcoin without the complexities of direct ownership. These approved ETFs are subject to SEC oversight and adhere to the same rules and regulations as other investment funds.
However, the approval of Bitcoin ETFs in the United States raises questions about the possibility of similar products in Europe. The European landscape for accessing cryptocurrencies remains complex for investors, with limited options for larger investors or those seeking traditional investment structures. The Undertakings for Collective Investment in Transferable Securities (UCITS) regulation in Europe prevents the approval of ETFs that exclusively invest in Bitcoin or any single asset, as it requires diversification and limits exposure to a single asset class.
As a result, European investors interested in the crypto market have to rely on alternative products, such as Bitcoin exchange-traded notes (ETNs). These ETNs, offered by various investment companies like 21Shares, VanEck, ETC Group, and Deutsche Digital Assets (DDA), are similar to ETFs and are often backed by physical Bitcoin. ETNs are easily tradable on exchanges like Deutsche Börse’s Xetra, Euronext Amsterdam, or SIX Swiss Exchange, making them familiar to investors who are already acquainted with exchange-traded products.
However, from a legal perspective, ETNs do not offer the same level of protection as ETFs in the event of an issuer’s insolvency. To address this concern, several providers have implemented additional security measures, such as using regulated crypto custodians and independent security trustees.
While the differences between ETFs and ETNs may not be significant if the product structure is appropriate, it is unlikely that Europe will approve Bitcoin ETFs in their current single-asset form. The existing directives in the EU do not consider crypto-assets eligible for UCITS funds, and even if the rules were to change, crypto ETFs would still have to comply with diversification rules. However, an ETF based on a crypto index with multiple cryptocurrencies could be possible if recognized crypto indexes meeting UCITS requirements are established.
Despite the absence of a Bitcoin ETF, Europe already offers a wide range of investment options for cryptocurrencies. Companies like 21Shares provide around 40 products in multiple EU countries, including indexes, single asset products, and liquid staking products, all backed by physical spot crypto assets. These products are listed on exchanges such as SIX and Xetra in various currencies, and Europe is considered ahead of the United States in terms of providing regulated access to crypto through ETNs and ETFs. The demand for cryptocurrencies in Europe remains high as investors recognize the value and opportunities in this asset class.