- Europe’s first Bitcoin exchange-traded fund (ETF), managed by Jacobi Asset Management, is set to launch after a year-long delay due to market turbulence caused by cryptocurrency crashes.
- Jacobi’s ETF, different from prevalent exchange-traded notes (ETNs) in Europe, provides a more investor-friendly approach, giving shareholders a share of the underlying assets and avoiding potential “significant counterparty risk.”
- Despite regulatory challenges and the initial delay, the increasing interest in digital assets in Europe, as indicated by the $483 million net flows into European digital assets ETPs, signals a promising future for Jacobi’s Bitcoin ETF.
After an arduous wait, the European financial market is all set to welcome its first-ever Bitcoin exchange-traded fund (ETF), courtesy of Jacobi Asset Management. The launching, initially slated for last July, faced a 12-month delay due to turbulent market conditions, mainly precipitated by the unsettling crash of the Terra Luna cryptocurrency in May 2022 and the November downfall of the crypto exchange FTX.
An ETF offers a more investor-friendly approach compared to exchange-traded notes (ETNs) prevalent in Europe’s digital assets market. Unlike ETN investors who hold a debt security, ETF shareholders possess a fraction of the fund’s underlying shares. Jacobi emphasizes the distinction and the significance of launching an ETF instead of an ETN.
Concerns regarding the “misuse” of the term ETF by ETN issuers, presumably to blur the inherent risks of investing in ETNs, were raised by Jacobi’s COO, Peter Lane. According to Lane, the lack of clarity created confusion in the market and perpetuated misinformation.
The novel ETF by Jacobi, authorized in Guernsey, a favorable jurisdiction for fund launches, refrains from leveraging or using derivatives, thus averting a potential “significant counterparty risk.” David Crosland, a partner at offshore law firm Carey Olsen, praised Guernsey’s “flexibility” and adaptability in facilitating this initiative.
The challenge of introducing a Bitcoin ETF in Europe was described as “very large” by Michael O’Riordan, founding partner of Blackwater Search and Advisory, due to the continent’s regulatory framework not considering Bitcoin as an eligible asset under Ucits rules.
Nonetheless, interest in digital assets continues to surge in Europe, as evident from the $483 million net flows into European digital assets ETPs in the past 18 months, as reported by Coinbase and Bloomberg. Despite the postponement, Jacobi’s Bitcoin ETF is expected to make a significant mark in this burgeoning market segment.
EU Advances Crypto-Regulation Amid Rising Potential
The European Union (EU) is bolstering the crypto-economy while protecting investors. The European Commission’s Regulations (EU, adopted in May 2023, encapsulate this vision. The framework focuses on safety measures such as asset backing and redemption plans for the issuance of crypto-assets and related services.
In its commitment to address potential risks, such as financial instability, market manipulation, and illicit activities, the EU has established measures to trace crypto-transfers and requires businesses to disclose energy consumption. The regulations also highlight environmental concerns, especially Bitcoin’s high energy use.
Furthermore, the European Banking Authority is urging stablecoin issuers to prepare for these regulations, emphasizing the need for sound governance, risk management, and redemption arrangements. This proactive approach underscores the EU’s commitment to support the growth of digital assets, while mitigating associated risks.
