- Even as more institutional investors muscle into the cryptocurrency space, there is a reluctance by regulators to provide mom-and-pop investors access to these products.
- If nothing else, regulators could provide greater access to a growing asset class that investors want to participate in anyway, via an ETF that would also protect investor rights and recourse.
The one democratizing factor about cryptocurrencies and the trading thereof has been the almost non-existent barriers to entry, meaning that retail investors were the first past the post and many ordinary lives were changed by the transformative (speculative) potential of the nascent asset class.
But even as more institutional investors muscle into the cryptocurrency space, there is a reluctance by regulators to provide mom-and-pop investors access to these products.
While leading financial hubs like New York and London waver on allowing cryptocurrency ETF products that hold actual digital assets as their underlying, secondary financial centers like Zurich and Toronto have been making hay while the sun shines.
Sao Paolo has also emerged as an unlikely candidate to push the envelope in Latin America, with the Brazilian Securities Commission recently opening the door to the world’s first two decentralized finance ETFs.
These DeFi ETFs invest in a basket of tokens issued by decentralized applications like Uniswap, a decentralized exchange, and Polygon, that aims to make transactions on primary blockchains like Ethereum, faster.
Zurich’s SIX Swiss Exchange has a long list of cryptocurrency exchange-traded products, which are the functional equivalent of ETFs, but are labeled as such for regulatory reasons.
And Canada, Sweden, Germany, Jersey and Liechtenstein have all approved products investing either in individual cryptocurrencies or baskets of such securities, with Australia and India likely to follow suit.
But the quest for a physically-backed Bitcoin ETF in the U.S. remains elusive, with the U.S. Securities and Exchange Commission having so far rejected over a dozen applications for a Bitcoin ETF or other similar products, arguing that the applicants have so far not gone far enough to prove how their products will not be susceptible to manipulation.
Other leading financial centers outside of New York, like Singapore and Hong Kong, have also been reticent to greenlight such products, instead raising significant barriers between the US$10 trillion ETF industry and cryptocurrencies, which now boast a market cap of around US$2 trillion (on a good day).
Yet this reticence on concerns over consumer protection seems somewhat disingenuous, especially given that retail investors can avail themselves of cryptocurrencies directly, which they have always been able to access through cryptocurrency exchanges, and now through decentralized exchanges.
If nothing else, regulators could provide greater access to a growing asset class that investors want to participate in anyway, via an ETF that would also protect investor rights and recourse.
