Appold Market Watch - Week 20 to 24 May 2024

Market Update & Industry News - Week ending 24 May 2024

🔷 The UK’s Financial Conduct Authority approved WisdomTree, 21Shares, and Invesco EMEA’s Bitcoin and Ethereum-based exchange-traded products (ETPs) and are set to debut on the London Stock Exchange (LSE). The ETP products must be in Bitcoin or Ether and be physically backed and non-leveraged. However, the ETPs are only available to professional and institutional investors due to current FCA regulatory restrictions.

Appold view: A welcome step, although insufficient in terms of allowing retail to access this market. In January 2021 the FCA banned retail access to crypto ETPs, forcing retail to move away from a highly regulated environment and into the riskier and less governed crypto exchange markets. This is half a step in the right direction but comes too late when trying to compete with other countries' stock exchange offerings, whilst continuing to lock out those that need to be protected most (i.e. retail) from these better-governed and better-protected market environments. 

🔷 The U.S. Securities and Exchange Commission (SEC) approved a rule change to facilitate Exchange-Traded Funds (ETFs) that buy and hold Ether. Numerous exchanges were authorised by the SEC to list eight different Ether funds. However, the ETFs themselves were not approved for trading and still require SEC approval. The move by the SEC has allegedly been a positive sign by the regulator, contrasting multiple ongoing legal battles with US crypto firms.

Appold view: There is no shortage of demand from ETF issuers lining up to launch spot ETH products. But the SEC timescales around this sector have traditionally been slow and opaque with no timescales at present.

🔷 The U.S. House of Representatives passed a Bill establishing a new legal framework for digital currencies. The Financial Innovation and Technology for the 21st Century (FIT21) Act is alleged to provide regulatory clarity for digital assets, contrary to the chair of the SEC who stated that the bill would create new regulatory gaps. Further approval is still required from the Senate.

Appold view: A step in the right direction but the regulatory gaps could lead to increased scrutiny and challenges in the Senate. That, In conjunction with ongoing election campaigns, will inevitably hamper any approval processes.

🔷 The European Union established an organisation to introduce a new blockchain infrastructure to reduce reliance on US technology. “Europeum” has the backing of ten EU states in a joint effort to build a sovereign and secure digital infrastructure.

Appold view: There is a lot to explore with this, but at a high level, the initiative should boost blockchain adoption, innovation and regulatory clarity across Europe. How this will be done will be the more contentious part.

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