Jacobi Asset Management is preparing to publicly list Europe’s first bitcoin exchange-traded fund (ETF) this month, following a delay of one year. Initially scheduled for July 2022, the launch was postponed due to market conditions and the impact of the Terra Luna cryptocurrency crash and FTX exchange collapse. However, the asset manager now asserts that the time is right, as demand has shifted since last summer.
In contrast to existing digital asset exchange-traded products in Europe, which are structured as exchange-traded notes (ETNs), Jacobi’s ETF will provide direct ownership of underlying shares. This distinction is significant, as ETN investors own a debt security rather than the actual assets. Peter Lane, co-founder and COO of Jacobi, criticized ETN issuers for the misuse of the term “ETF” and highlighted the potential risks associated with investing in ETNs.
The Jacobi bitcoin ETF will not utilize leverage or derivatives, mitigating significant counterparty risk. The fund has been authorized in Guernsey, a jurisdiction that offers favorable conditions for the launch of a bitcoin fund. Guernsey’s regulatory flexibility and understanding of complex details enabled the ETF to benefit from regulated fund status when other European jurisdictions faced limitations.
Launching a bitcoin ETF in Europe presents substantial regulatory challenges due to bitcoin not being considered an eligible asset under Ucits rules. However, industry experts note that, apart from structural differences, ETFs and exchange-traded products (ETPs) are similar in practice. Michael O’Riordan, a founding partner at Blackwater Search and Advisory, emphasized the need for better industry differentiation between ETFs and ETPs to reduce market confusion.
Over the past 18 months, European digital assets ETPs have seen significant inflows, totaling $483 million, including $398 million in the third quarter of 2022 alone, according to Coinbase and Bloomberg data. However, assets in European digital assets ETPs currently stand at €4.3 billion, down from a peak of €10.5 billion at the end of 2021, according to Morningstar data analyzed by Ignites Europe.