21Shares calls on the European Securities and Markets Authority (ESMA) to grant crypto assets a unified regulatory status within UCITS funds.
The discussion centers on reconciling discrepancies between European countries, some allowing crypto trading through UCITS funds but others not. The firm believes clear, consistent rules would protect investors and simplify crypto investments.
Regulatory Fragmentation in Europe
Germany, Malta, and other countries allow UCITS funds to hold crypto. While others like Luxembourg and Ireland don’t allow crypto in their UCITS funds. This regulatory fragmentation confuses retail and institutional investors, hindering the ability to compare investment options across the continent. Both crypto exposure methods require investors to rely on less professional, more costly means without a consistent framework.
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21Shares argues that it would mean closing gaps in investor protection and subjecting all EU member states to the same rules. Mandy Chiu, Head of Financial Product Development at 21Shares, said,
“The current patchwork of regulations is preventing retail investors from accessing the full potential of crypto assets.”
She added that a consistent set of rules would allow more investors to diversify their portfolios safely.
Demand for Clearer Guidelines
21Shares urges ESMA to provide guidelines on indirect crypto exposure through UCITS funds, which is expected to enhance. According to the firm, investing directly in cryptocurrencies is complicated for institutional investors. However, exchange-traded products on crypto (ETPs) allow a simpler entry. They trade like securities, giving you a regulated and cheap way to enter the crypto market.
More straightforward ESMA guidelines would benefit the market and innovation throughout Europe’s financial sector. Chiu emphasized,
“By providing a consistent set of rules across Europe, ESMA could open up new avenues for investors to diversify and enhance their portfolios in a regulated environment that is designed for investor protection.“
According to 21Shares, this move would align Europe with other major markets, such as the US and Hong Kong, which already offer regulated crypto ETFs.
Global Competition and Market Maturity
21Shares also warns that Europe risks being left behind by global markets that have already recognized and regulated bitcoin ETFs.
According to the firm, the US and Hong Kong markets have approved Bitcoin and Ethereum ETFs, thus giving their investors safe access to crypto assets. In addition, action must be taken quickly to ensure European investors are likely to exit for less regulated alternatives.
Over the years, the crypto market has improved significantly, especially concerning transparency, liquidity, and safeguards against risks like hacking and market manipulation. Now, global exchanges provide trustworthy data and security measures, so crypto assets have become similar to traditional financial instruments. By including crypto in regulated UCITS funds, investors can buy this asset class on regulated platforms and at more affordable and professional terms.
According to 21Shares, if ESMA acts quickly, Europe could take the lead over other markets in financial innovation rather than fall behind. The firm also emphasizes the urgency behind implementing these changes, lest Europe be left trailing behind in the global crypto landscape.
21Shares urges ESMA to apply one regulatory approach across Europe to protect investors and support the markets. The firm said this would match Europe’s tradition of encouraging innovation and competitive markets.
