Why There is No Ethereum ETF in the EU
Why There is No Ethereum ETF in the EU
The hype surrounding Ethereum ETFs is currently dominating the crypto sector. If the US Securities and Exchange Commission (SEC) approves ETH-indexed funds, the gates will be open for billions of dollars from private and institutional investors. However, European investors can only indirectly benefit from the rising Ether price. The EU has ruled out the approval of US-style spot ETFs. Why is that, and how can you still invest in Ethereum on the stock market?
EU Regulation Blocks Index Funds on Ethereum
The Undertakings for Collective Investments in Transferable Securities (UCITS) system is designed to ensure the security of investment funds. Approximately 75% of ETFs comply with UCITS regulations, which offer benefits for fund managers. After approval in one EU country, a fund can be sold throughout the EU, provided it adheres to UCITS regulations.
What stands in the way of Ethereum and other crypto ETFs: A UCITS ETF must be sufficiently diversified, with no single asset accounting for more than 20% of the net asset value. An Ethereum ETF would be 100% invested in Ether, violating this requirement.
To sell products across the European Union, a fund manager must comply with UCITS regulations. "Simply put, this means that all ETFs targeting a single investment objective – like a Bitcoin or Gold ETF – are excluded," explains Dr. Alexander Bechtel, a financial. Similarly, investing in Ethereum on the stock market requires an alternative. The solution: bonds.
Investing in Ethereum on EU Stock Exchanges
ETP, ETC, ETN – these acronyms may seem confusing at first, but help bring gold, Bitcoin, and Ethereum to European stock exchanges. ETP (Exchange Traded Product) is the overarching term, encompassing all forms of passively managed, exchange-traded securities. The various ETPs can represent stocks, bonds, commodities, or cryptocurrencies.
ETNs (Exchange Traded Notes) are exchange-traded bonds that can be linked to a single asset like Ethereum. However, unlike ETFs, they are not protected from insolvency, as they do not belong to the special assets. Similarly, ETCs (Exchange Traded Commodities) are linked to the price development of one or more commodities. Gold ETCs, such as XETRA Gold, are particularly popular in Germany. However, they also carry a theoretical default risk.
Dr. Bechtel reassures investors: "The new xTrackers ETCs on Bitcoin and Ethereum are backed by a direct investment in the underlying cryptocurrency. The ETCs are therefore not synthetic, but physically backed." The same applies to other major crypto ETPs on the market, as shown by a justETF overview. The physical backing of the ETCs minimizes the counterparty risk. For an additional layer of security, Bitcoin, Ether, and other cryptocurrencies are often stored in cold storage solutions by professional crypto custodians like Coinbase.
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