Can I Buy a Bitcoin Spot ETF in The UK? - MORNING STAR
No, but there are a number of other ways you can gain cryptocurrency exposure
Now there are even more.
Yesterday the US Securities & Exchange Commission (SEC) approved the sale of exchange-traded funds (ETFs) linked to the spot price of Bitcoin. It's a move that tops off years of wrangling over how viable cryptocurrency investing actually is – not to mention the manipulability of markets themselves. For now, it looks like Bitcoin trading is getting another tailwind, though for how long isn’t clear.
This latest development originates in the US, where cryptocurrencies have rarely been out of the headlines in the past two years – for both good and bad reasons.
But can UK investors get involved too? See our FAQ below for more information.
Can I Buy The New US Spot Bitcoin ETFs in the UK?
The short answer to this question is no.
Though fans of cryptocurrency may see this latest US news as a landmark step, UK counterparts may be waiting some time before similar developments in Blighty.
AJ Bell’s head of investment analysis Laith Khalaf says anyone trying to make the case to the Financial Conduct Authority (FCA) that things have changed and that now is the right time to fall in line with the US may well have a difficult time.
"Even with the SEC approval, it isn't a slam dunk that we will get one over here because the UK regulator may not approve their sale," he says.
"US ETFs are not available for sale in the UK because they don't issue a Key Investor Document, so fund groups would need to launch funds specifically for the European or UK market. In 2021 the FCA banned the sale of exchange-traded notes containing 'unregulated transferable cryptoassets'. These contained really complex whizzy derivatives and financial engineering to gain exposure to the asset class.
"At the time [the FCA said] crypto had no inherent value, was wildly volatile, rife with financial crime, and didn't fulfil a financial planning need for investors. It's difficult to make a case that any of that has changed."
Why Can Europeans Invest in Crypto ETFs and I Can’t?
The simple answer is the rules differ in each country.
Countries like Switzerland, Germany and France have a more advanced regulatory framework for crypto adoption. Last year the first European Bitcoin spot ETF listed in Amsterdam. The UK regulator has taken a decidedly more cautious approach.
Will UK Cryptocurrency Regulation Change Now?
We'll save you the politics, but suffice to say the FCA is in something of a bind over the current direction of political travel in the UK (an almost-desperate impetus for economic growth and technological innovation) and its own statutory mandate to protect consumers.
Sometimes it feels as though the regulator is trying to put a tick in each box, one after another. In recent years, however, cryptocurrency has been the exception.
That comes despite talk in central government and even the Bank of England of a shift to a digital currency monikered as “Britcoin”.
For his part, Khalaf reckons the regulator is walking a tightrope on this issue.
"The UK regulatory landscape is shifting, with crypto activities being brought under the supervision of the FCA, so this may pave the way for crypto ETFs at some point in the future," he says.
"If or when that might happen is anyone's guess. The FCA is walking a bit of a tightrope here between keeping consumers safe and the government’s ambition to make the UK a global hub for cryptoasset technologies. Bitcoin has endured a number of scandals and huge price volatility, but large investment groups are clearly still interested in packaging it into a tradeable product for punters.
"This is presumably because there would be large consumer demand for Bitcoin ETFs, but sometimes you should be careful what you wish for. It's hard to make a case that crypto fulfils a genuine financial planning need that can't be met by other assets, but it definitely does open up investors to the possibility of very heavy losses."
How Can I Get Exposure to Bitcoin?
Even if you cannot yet buy a Bitcoin spot ETF in the manner now approved by the SEC, there are a number of ways to get exposure to Bitcoin and other cryptocurrencies.
This article does not constitute advice to attempt to do so, and readers are reminded they do so at their own risk, and may incur substantial – if not comprehensive – losses.
One option is to buy Bitcoin itself from an FCA-regulated trading platform. At the time of writing, the price of a single Bitcoin is up 1.13% to $47,199 (£37,199).
For those feeling somewhat more cautious, you can gain exposure to cryptocurrencies by buying the shares of companies themselves involved or exposed to cryptocurrency mining. Nvidia (NVDA) is one example, but payment companies like Paypal (PYPL) and Block (SQ) would be others.
What's The Difference Between a Bitcoin ETF and a Bitcoin Spot ETF?
If you want to understand how cryptocurrency investing works, it’s important to know the difference between products directly linked to cryptocurrency prices, and those with a more secondary exposure.
That is essentially the difference between spot price ETFs and broader exchange-traded products exposed to cryptocurrency.
"The primary difference between a spot ETF and other crypto ETFs is in the assets they hold and how they attract their value," says Monika Calay, director of passive research strategies at Morningstar.
"A spot ETF like the recently-approved spot Bitcoin ETF primarily holds the actual cryptocurrency itself such as Bitcoin. It physically owns and stores Bitcoin, and the ETF's value is directly tied to the real-time price of Bitcoin.
"When you invest in a Bitcoin spot ETF you're essentially owning a share of the cryptocurrency itself, and its performance closely mirrors the price of that cryptocurrency – minus fees and costs."
But that's not the only way of doing it. Other ETFs will invest in cryptocurrency-related instruments, such as futures, contracts, futures, options, or shares of companies related to the cryptocurrency industry 0 see above.
"Compared to these structures, spot Bitcoin ETFs are an immediate improvement in purity of Bitcoin exposure," Calay says.
Has Cryptocurrency Investing Just Gotten Safer?
Purer? Maybe. Safer? No.
Morningstar Investment Management, which is Morningstar's professional portfolio investing business, remains extremely cautious on cryptocurrencies.
"What started as a pool of ‘early adopters’ has morphed into a growing group of 'quick profit traders'," it said in 2021.
"This motive is innately understandable yet fraught with danger."
That house view has not changed.