The evolution of cryptocurrencies
21Shares offers the largest suite of cryptocurrency exchange-traded products (ETPs) in the world. Since it was founded more than six years ago, it has aimed to be a bridge between crypto and traditional investing.
As Alex Pollak, Managing Director of 21Shares and Head of UK and Israel, points out, the company offers nearly 50 products covering different aspects of the market, such as single coins, baskets of products and gold as well as Bitcoin.
The first exchange-traded notes (ETNs) issuer to debut on the London Stock Exchange at the end of May, 21Shares aims to help people with their cryptocurrency journey.
Here Pollak talks to CampdenFB about the significance of the listing and the evolution of cryptocurrencies.
How significant is it that Britain’s Financial Conduct Authority (FCA) approved Bitcoin and Ethereum exchange-traded notes (ETNs) at the end of May?
Family offices have been able to access cryptocurrencies for many years via a variety of means. In one sense, the London listing doesn’t really make a whole lot of difference to a family office. If they had wanted to access cryptocurrencies before the end of May, then they could have done so in Switzerland, Germany or the US or they could have used a crypto exchange. But what is important is the message around the listing. From a regulatory perspective, it shows that the regulators are beginning to come around to the fact not only that this technology is not going away, but also that there is client demand for it. Global regulators are slowly starting to pivot. The FCA’s decision to approve a Bitcoin and Ethereum ETN on the London Stock Exchange is part of that movement from the regulatory perspective.
How do you explain cryptocurrencies to family offices?
There are different ways to access crypto. You can do it via crypto exchanges like Coinbase, Binance or Kraken. In the UK that is how many people do it. Even though the FCA put a ban on crypto derivative products a couple of years ago, it didn’t prevent people who wanted to buy these products via crypto exchanges. That’s one way of buying it.
Institutional investors can all look at the futures market. For example, CME has Bitcoin futures. And then investors can open their own digital wallets as well. There are platforms like MetaMask that can help you do that as well as trading platforms like the Uniswap trading platform which is built on the Ethereum network.
The issue is that all of this is something that only crypto-native investors do.
I believe that an ETN is probably the most appropriate instrument for traditional investors – those who don’t want to worry about futures markets and don’t want to open an account with a crypto exchange. There are some very compelling reasons why an ETN is a preferred preferable route for a traditional investor.
How has tokenization helped the market?
Tokenization can democratise the way that people invest.
Where it has become really interesting is within private markets. Infrastructure funds or private equity private funds can be quite difficult to access if you are a retail investor or even a wealth investor. Tokenization is a way to make access to real world assets easier and more efficient, cheaper and quicker.
One of the large institutional asset managers, for example, has moved into the crypto space and has embraced tokenization. It recently tokenized a money market fund which is listed on the Ethereum blockchain. Over the past six weeks, it has raised more than $500 million. The reason that it is doing well is because this is just another way of accessing the asset class.
The UK asset management industry is currently working hard on the issue and the FCA is committed to it as well.
Tokenization is really exciting, and ETFs have been one of the most successful stories in financial services over the last 20 years or so.
Could Britain become the crypto hub of Europe?
The UK is already moving in that direction. Within three years Britain will have the largest crypto ETN market in Europe, but this is contingent on the FCA specifically lifting the ban on retail users. There is a great deal of pent-up demand there.
I speak to many retail platforms and asset managers who sell their multi-asset funds to retail investors and all of them are interested in allocating to crypto but they are not able to do so because of the retail ban.
If that ban were to be lifted, then the demand will come through and not only will Britain become the largest crypto ETN market in Europe, but the whole vision of being the crypto hub in Europe will be realised.
Are there any indications when the retail ban might be lifted?
The FCA is understandably being very tight-lipped about the issue and hasn’t commented on it publicly. But it is receiving a greater number of questions from UK retail investors. After all, US retail investors can buy it, as can European and Asian ones. The more questions that it gets from the public about it, the more pressure and the more news that there is shows that there has been shift in public opinion.
Then there is the global regulatory environment which is evolving too.
I don’t believe that anything is going to change in the next 12 months because the FCA will want to see how the new listings develop and evolve. But orderly trading and the development of market makers suggest that the market is evolving enough for the FCA soon to allow retail trading.
