Stay informed with free updates
Simply register at Digital currencies myFT Digest – delivered straight to your inbox.
The UK’s decision to open cryptocurrency funds to retail investors has sparked a price war, with fees for bitcoin-related products slashed to 0.05 percent.
The fierce battle for digital asset exchange-traded notes (ETNs), which echoes a similarly aggressive fight for market share in the United States when access opens in January 2024, means it may be cheaper to hold cryptocurrencies in a regulated product than the vast majority of stock and bond funds.
This comes at a time when some cryptocurrency ETNs, previously only available in the UK to professional investors, still charge fees of up to 2.5% per year, 50 times more than the cheapest Bitcoin vehicle. These notes track an underlying digital currency and are listed and traded on exchanges.
The Financial Conduct Authority, Britain’s regulator, this month lifted its ban on retail investors buying such exchange-traded products, softening its stance against such investments after trying to protect small investors from volatility and fraud.
The lifting of the ban means investors can hold any of the permitted London-listed crypto ETNs in a shares Isa if they purchase in the current tax year. From April 6 next year, they will be reclassified as eligible investments for the Innovative Finance Isa.
The cheapest Bitcoin fund is run by Bitwise, which has reduced the annual fee for its Core Bitcoin ETP from 0.2% to 0.05% “effective for six months and then until further notice.”
This hurts 21Shares, which reduced fees on its Core Bitcoin and Ethereum Core Staking ETPs to 0.1%.
Both measures came after Fidelity reduced the fee on its physical Bitcoin ETP to 0.25 percent and Invesco reduced the levy for its equivalent vehicle to 0.1 percent until the end of 2025.
BlackRock, which dominates the crypto exchange-traded fund (ETF) market in the United States with its $92 billion iShares Bitcoin Trust, has also entered the UK market by listing its European iShares Bitcoin ETP in London with its usual 0.25 percent fee reduced to 0.15 percent until January.
The cheapest ether fund remains the CoinShares Physical Staked Ethereum ETP, which is the only exchange-traded product in Europe to have no fees, according to ETFbook data.
It is able to do this because CoinShares uses a portion of the revenue it earns from staking – the process of staking ether to help manage the blockchain and earn rewards – to offset the fund’s expenses. Staking is not possible for bitcoin.
Although many large investment brokers such as Hargreaves Lansdown and AJ Bell do not yet offer crypto ETNs, early trading data suggests that some retail investors are accessing them through platforms such as Interactive Investor, Trading 212 and Interactive Brokers.
Trading volumes for Bitcoin ETPs on the London Stock Exchange have averaged $7.2 million per day since retail access became available on October 17, up from $2.1 million earlier in October, when they were only available to professional investors, according to analysis of Bitwise data. Ether ETNs also saw a rise of $1.9 million per day to $4.4 million.
WisdomTree’s physical Bitcoin and physical Ethereum vehicles saw the highest turnover since retail access opened, followed by iShares, according to Morningstar data.
“We believe this reiterates the exceptional level of appetite for exposure to these assets,” said Russell Barlow, chief executive of 21Shares, commenting on the rise in trading volumes.
Despite finally allowing retail investors to purchase crypto ETNs, the FCA this week issued a new statement ordering issuers not to offer their customers any incentives to invest, to carry out “robust” suitability assessments, to offer cooling-off periods and to highlight relevant risk warnings.
