WisdomTree, the US asset manager, has received approval of its prospectus for crypto exchange-traded products (ETPs) to list in London as the US market waits to see if spot ether ETFs are approved.

The UK Financial Conduct Authority has approved the prospectus to allow the 100% physically backed WisdomTree Physical Bitcoin and WisdomTree Physical Ethereum ETPs on the London Stock Exchange.

WisdomTree said in a statement that the firm is amongst the first issuers to have its prospectus relating to crypto ETPs approved by the FCA and they will be listed on the LSE at the earliest date possible which is expected to be on 28 May. At the time of listing, they will only be available to professional investors.

Alexis Marinof, head of Europe at WisdomTree, said in a statement  “FCA approval could result in greater institutional adoption of the asset class, as many professional investors have been unable to gain exposure to Bitcoin and other cryptocurrencies due to regulatory limitations and uncertainty – we would expect FCA approval of our crypto ETPs’ prospectus to remove those barriers to entry.”

WisdomTree has already listed crypto ETPs in Germany on  Deutsche Börse Xetra, on SIX, the Swiss Stock Exchange and Euronext exchanges in Paris and Amsterdam to provide access for  European investors.

Lots of interesting regulatory developments in the U.S. this week… but maybe the most concrete change in the market is the approval of #crypto ETPs in the UK! The @21Shares team is incredibly excited about this new development. Onwards! 🚀 https://t.co/sOp9TUfSu1

— Ophelia Snyder (@OpheliaBSnyder) May 22, 2024

Another US asset manager, Invesco, has also listed a crypto ETP in Europe which it will look to list in London. Christopher Mellor, head of EMEA ETF equity and commodity product management at Invesco, spoke on a panel at City Week 2024 on 21 May in London. He said the firm has a bitcoin ETP listed in Germany and Switzerland and that it will soon be listed on the LSE.

Tom Stenhouse, head of equities trading product at the London Stock Exchange Group, said in an email: “From 28 May we are pleased to be launching a market for crypto ETNs which will enable access for professional investors within a transparent and highly regulated environment. From launch, we will be listing products from three issuers – 21 Shares, Invesco and WisdomTree. We look forward to welcoming further issuers and investors to the market, and expanding the product set available, as institutional demand for digital assets increases.”

The Brown Brothers Harriman 2024 Global ETF Investor Survey found that nearly a quarter of investors, 23%, are most bullish about digital currency/bitcoin asset class over the next 12 months.

Invesco was also among the 11 issuers that listed a spot bitcoin ETF in the US in January following approval from the SEC.

“One of the problems for professional investors is to bring digital assets into existing frameworks and structures and that can be achieved in an ETF  wrapper,” Mellor added. “We have had crypto ETPs in Europe for a number of years which fit neatly into the existing custodians used by investment houses. “

Invesco has filed for a spot ether ETF and is waiting for SEC approval, as is another US manager, Franklin Templeton.

Tokenized funds

Sandy Kaul, global head of digital asset and industry advisory services at  Franklin Templeton, also spoke on the panel at City Week 2024. Franklin Templeton launched the first tokenized money market fund in 2021 and she said the firm is looking to create other products that give diversified exposure in an index-like way.

“We are looking at this very comprehensively from a mutual fund perspective, an ETF perspective and from the perspective of crypto-native products,” said Kaul.

Franklin Templeton had the largest tokenized money market fund until BlackRock also launched its first  tokenized money market fund this year.

Kaul explained that Franklin Templeton had a theory back in 2017 that using a distributed ledger could save money in terms of record keeping. Every fund has a security record maintained by the custodian, and a shareholder record kept by the transfer agent such as Franklin Templeton.

The asset manager kept shareholder records for thousands of mutual funds and built its own technology to test whether using a blockchain would be more efficient. The firm collaborated with the US Securities and Exchange Commission and ran a system on a public blockchain in parallel with its traditional mainframe-based transfer agency system for eight months.

The blockchain platform was more accurate, allowed for greater fractionalization and had a much better throughput according to Kaul.

“We were also able to make transfers and trade almost immediately,” she added. “We ran 50,000 trades on the blockchain at the price of one trade on the mainframe.”

In addition to the cost savings, Kaul said learning from the experiment was equally valuable. In order to record trades on a public blockchain, the user needs to hold coins on that blockchain to pay for the block space. Once Franklin Templeton owned coins, the asset manager realised they would need to be hedged by participating in staking networks and receiving rewards. Crypto staking is the process used by blockchain networks to validate transactions on the blockchain in exchange for a reward. 

Kaul said: “You need to be engaged in new types of operational activities to operate effectively.”

Franklin Templeton currently operates on five different public blockchains, each of which has its own nuances.

“Counterintuitively, we realised that private blockchains are going to have more security risks, not be as accurate, e bmore vulnerable to fraud and will not be able to achieve the liquidity or cost savings of public blockchains,” Kaul added. “The way to think about these public blockchains is that they are going to become like public utilities for record keeping around the globe.”

The fund manager also built an investment research team and produces research on 50 individual coins and is running 12 seeded model portfolios, some of which are now approaching three-year track records. Jenny Johnson, president and chief executive, at Franklin Templeton recently told Bloomberg TV that she believes all ETFs and mutual funds will eventually be on a blockchain.

Kaul said: “We need to start to think about a world where we’re moving away from account structures to digital cryptographically protected wallets, where assets can be co-mingled. Investors will be to hold a currency, a commodity, a security and a cryptoasset in the same wallet.”

Katey Neate, chief operating officer, digital assets at BNY Mellon said on the panel that the firm is meeting the needs of asset managers in servicing crypto ETFs and bringing tokenized funds to market.

“That’s really where we have seen the most demand over the last 12 months,” Neate added.

She agreed that efficiency and cost savings are a driver but also that some core businesses stand to be disintermediated by this technology so firms need to meet clients where they need services, such as custody and transfer agency in either the traditional or digital space.

“We are also thinking about where we can move up the value chain and provide some of those services ourselves,” Neate added.