After years of waiting and numerous rejections, 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. Unlike Bitcoin futures ETFs, which were previously available in the US, these newly approved ETFs directly purchase and hold Bitcoin, tracking its price one-to-one. This development offers regulated and convenient access to Bitcoin for both institutional and retail investors without the need to directly buy and store the cryptocurrency themselves. These ETFs are subject to SEC oversight and adhere to the same rules and codes of conduct as other investment funds.
However, the European landscape for accessing Bitcoin and other cryptocurrencies remains complex for investors. Due to the Undertakings for Collective Investment in Transferable Securities (UCITS) regulation, ETFs that exclusively invest in Bitcoin or any single asset are not approved in Europe. UCITS aims to protect investors from total financial losses by requiring fund products to be diversified and not heavily invested in a single asset class or product. Therefore, European investors have to rely on alternative products to participate in the crypto market, such as Bitcoin exchange-traded notes (ETNs). ETNs are similar to ETFs and are often backed by physical Bitcoin. Several European investment companies, including 21Shares, VanEck, ETC Group, and Deutsche Digital Assets (DDA), offer such alternative investments in the form of ETNs.
Although ETNs provide familiarity and easy tradability on exchanges, they do not have the same legal protection as ETFs. In the event of an issuer’s insolvency, customer funds may not be separated from the bankruptcy estate. To address this concern, providers have implemented various security measures, including regulated crypto custodians, independent security trustees, and internal governance mechanisms.
Institutional investors in Europe also have the option to invest in special Alternative Investment Funds (AIFs) that are not regulated by the UCITS Directive. These funds can directly invest in cryptocurrencies, but they are only accessible to institutional investors and not retail clients.
As for the possibility of Bitcoin ETFs being approved in the EU in the future, it is unlikely that they will be allowed in their current single-asset form. Crypto-assets are not considered UCITS-eligible assets, and even if the rules were to change, crypto ETFs would still need 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 offers diverse investment options for cryptocurrencies. 21Shares alone provides around 40 products in eight EU countries, including indexes, single asset products, liquid staking products, and shorts, all backed by physical spot crypto assets. These products are listed on exchanges such as SIX and Xetra in multiple currencies. Europe is ahead of the US in offering regulated access to crypto in an ETN/ETF wrapper, and there is a high demand for cryptocurrencies in Europe as investors recognize their value and potential.