The Timing is right; European Firm to launch Bitcoin ETF in Eurozone

Europe is set to witness the launch of its first bitcoin exchange-traded fund (ETF) this month, a year after its original planned introduction.

Jacobi Asset Management, the firm behind the ETF, initially intended to list it on Euronext Amsterdam in July 2022. However, the company decided to delay the launch due to concerns surrounding the Terra Luna cryptocurrency crash in May 2022 and the collapse of crypto exchange FTX in November of the same year. Now, with the belief that the timing is right, Jacobi states that the fund is on track for its imminent release, citing a shift in demand since last summer.

It is worth noting that all digital asset exchange-traded products in Europe thus far have been structured as exchange-traded notes (ETNs), rather than funds. In an ETF, each shareholder possesses a portion of the fund's underlying shares, whereas ETN investors hold a debt security rather than direct ownership of the underlying assets. Jacobi emphasizes the distinction between its ETF and ETNs, highlighting that the former does not involve leverage or derivatives, thereby mitigating significant counterparty risk.

Jacobi's decision to launch an ETF rather than an ETN aligns with their criticism of structured note issuers misusing the ETF term. Peter Lane, co-founder and COO of Jacobi, expressed concern over the misinformation and misuse of the term ETF by ETN issuers, potentially obscuring the risks associated with ETNs.

The ETF has received authorization in Guernsey, a jurisdiction offering various advantages conducive to launching a bitcoin fund, as noted by David Crosland, a partner at offshore law firm Carey Olsen.

Launching a bitcoin ETF in Europe poses significant regulatory challenges due to bitcoin's classification as an ineligible asset under Ucits rules. Nonetheless, Michael O'Riordan, founding partner of ETF and digital assets consultancy Blackwater Search and Advisory, points out that despite some structural differences, ETFs and ETPs are quite similar, leading to confusion in the market. O'Riordan suggests that the industry should make a greater effort to distinguish between the two.

Data from Coinbase and Bloomberg reveals that European digital asset ETPs have witnessed net flows of $483 million over the past 18 months, including inflows of $398 million in the third quarter of 2022 alone. Ignites Europe analysis of Morningstar data shows that assets in European digital asset ETPs currently amount to €4.3 billion, with a peak of €10.5 billion recorded at the end of 2021.

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