Global Bitcoin Regulations are Developing, Defining Crucial Areas of Conflict and Opportunity
ESMA, a primary EU finance regulator, is taking input about accepting Bitcoin in UCITS products. This follows a wave of pro-Bitcoin regulation sweeping the globe, including in markets tied to the EU.
The European Union’s primary financial regulator is considering approving Bitcoin for UCITS products, a potential watershed for legal acceptance on par with the SEC’s approval of a Bitcoin spot ETF.
This news first surfaced on May 9th, when the European Securities and Markets Authority (ESMA) put out a public call for various stakeholders to give their input as to whether or not certain new investment products could gain acceptance under UCITS approval. ESMA is one of the largest financial regulatory bodies in the EU, and it enjoys broad authority over internal markets within all member states. This authority naturally includes the ability to approve or reject certain financial instruments as legal within the bloc’s €12 trillion mutual fund market.
Undertakings for Collective Investment in Transferable Securities, or UCITS, is the current form of a directive that has existed in the European Union since the 1980s. Under its current configuration, it can approve certain funds as UCITS products that are registered and sellable throughout the entire market. Products marketed as UCITS-compliant enjoy a reputation for stability and consistent returns, which is why they represent 75% of all investment from retail investors in the entire EU. In ESMA’s request for input, it invited “investors and consumer groups interested in retail investment products, management companies of UCITS, self-managed UCITS investment companies, depositaries of UCITS, and trade associations” to give their feedback on the potential eligibility of several products, including cryptocurrency.
Stakeholders will have until August 7th to voice their opinions on the possible move, and no particular stakeholder has yet come forth to vocally endorse a Bitcoin-friendly policy. In other words, anything could happen from this point. ESMA’s specific call for evidence listed a possibility for both direct and indirect exposure to Bitcoin on its questionnaire. This could lead to a product like the futures ETF, carefully constructed to allow a fund to be generally connected to Bitcoin through a cadre of Bitcoin-related businesses. It could also involve direct exposure, allowing firms to simply acquire Bitcoin and sell ETF-style products based on the value of the Bitcoin stockpiles. For a best-case scenario, it’s important to remember the substantial implications of maximal acceptance: the EU’s ETF market is on the rise, and every single one of the market’s top 20 ETFs are UCITS products.
In other words, all the ingredients are there for a big success if ESMA declares Bitcoin to be UCITS-compliant for direct exposure. Just like spot ETFs in the US opened a floodgate for institutional and retail investment from wildly varying sources, European customers would have a greased ramp to safely put money into the Bitcoin economy. A particular quirk of the UCITS system means that a pure Bitcoin ETF would be unlikely, but that a variety of common products would include certain percentages of Bitcoin exposure. A move like this would not hamper Bitcoin liquidity like the American ETFs have done, but would also ensure that a substantial trickle from the trillions circulating in the UCITS market heads into Bitcoin. It's the best of both worlds, right?
There are a few possible concerns to consider before assuming that the EU is likely to approve the most maximalist option available, however. For one thing, even though a wave of ETF approvals has gone through jurisdictions like Hong Kong in the aftermath of the SEC’s decision, the EU can be tough on cryptocurrency. The Markets in Crypto Assets (MiCA) legal framework is set to take effect in 2024, and regardless of ESMA’s decision, it is almost certain to have an impact on the actual implementation. Additionally, there has been a surprising amount of murkiness as various national regulators in the EU have actually attempted to enforce purported guidelines. It will doubtlessly take time for markets across the continent to make this new framework into a well-tuned machine, and there is a long road before the revenue stream is secured.
Still, we do have a substantial opportunity here. Plus, the EU market is entangled with a great deal of others, broadening the possible benefit to Bitcoin if ESMA decides on maximalist approval. For example, European equity indices were connected to the performance of Bitcoin in the UK this May, although the Bank of England’s stance on interest rates ultimately held a more immediate sway in this market. Considering that British regulators are espousing a plan to regulate the crypto market by “taking the best” from both traditional and decentralized finance, a regime of moderately friendly new rules in Britain could translate into a real boom if such a plan coincides with new friendliness from European regulators. If Bitcoin really is winning new acceptance from a scattershot of different jurisdictions worldwide, there is a great potential for synchronization to maximize profits.
Still, even though there are a great deal of positive signals from these markets, it’s not a foregone conclusion that every party involved will immediately side with Bitcoin. For example, the US really began the wave of international ETF approval with the SEC’s decision in January. Despite this bullish decision, this doesn’t mean the government will act in lockstep; a proposed veto from President Biden is enough to prove that. Even though a bipartisan alliance of House Representatives voted to nullify certain anti-Bitcoin SEC decisions, their proposed plan has hit an unexpected speed bump.
The House voted 228-182 to strike down a controversial rule preventing banks from directly custodying cryptoassets, but President Biden vowed to veto this bill at the first opportunity. There is a definite political will from elected officials to take this Bitcoin-friendly step, but it seems unlikely that there is enough to defeat the veto just yet. In other words, it will take real momentum to ensure that Bitcoin’s supporters can overcome political speed bumps on this issue, and Bitcoin is likely to encounter a great number of potential hazards on the road to acceptance.
At the end of the day, there are a variety of positive signs that Bitcoin is enjoying a wave of new friendliness from regulators in many jurisdictions. It would be premature to suggest that ESMA’s questionnaire is a surefire sign that fresh billions or trillions of dollars will interact with Bitcoin in the next several months, but nevertheless, we can see potential here. Bitcoin has spent years being maligned as a cheap sideshow, a novelty piece of code primarily enjoyed by criminals and techno-anarchists. Now, however, some of the most influential finance regulators in the entire world market are forced to treat it as a legitimate asset, a billion-dollar business that has inflows on every continent. Bitcoin has opened up a number of opportunities for itself, and investors have a huge number of options for getting in on its success. From that perspective, it’s clear that Bitcoin has a bright future ahead.
If you liked this content please give a like and share! Comment below with your reactions to this post and any recommendations for future topics.
Thank you for reading Bitcoin Magazine Pro™, we sincerely appreciate your support!
Not Financial Advice.
 |
|