A recent study reveals that one in three Britons is open to investing in cryptocurrencies through exchange-traded products once the Financial Conduct Authority (FCA) lifts its current restrictions this Wednesday.

According to investment platform IG, the UK crypto market could experience a surge of up to 20% following the introduction of exchange-traded products. These products will enable investors to engage with cryptocurrencies in a more regulated environment.

Starting Wednesday, the FCA will remove its ban on crypto exchange-traded notes (ETNs), providing investors a pathway to digital currencies via stock exchange-traded products. These products mirror the asset’s price without requiring investors to own the digital currency directly.

While ETNs share similarities with the more familiar exchange-traded funds (ETFs), as both are listed on stock markets and pool investors’ capital to hold assets, ETNs entail a higher level of risk.

Unlike physical ETFs, which are obligated to hold the assets they track, ETNs allow providers the flexibility to match an index’s return in various ways without directly holding the underlying assets.

By the end of last year, approximately 12% of UK residents reported having exposure to crypto assets, according to FCA data. This number appears to have grown, with IG suggesting that about 25% of the population now owns some form of cryptocurrency.

A fifth of people said the ability to hold crypto within these tax wrappers would make them more likely to invest in the digital currencies

However, this indicates there could be a significant uplift in crypto ownership from 8 October.

There are 17 crypto ETNs listed on the London Stock Exchange, all of which have been only available for institutional investment over the past year. These include products from WisdomTree, Fidelity and Invesco.

More ETNs are expected to launch after the ban lifts.

IG said younger adults will likely make up the bulk of this interest, with half of quarter of 25s and 49 per cent of 25-to 34-year-olds saying they are interested in buying cryptocurrency.

Michael Healy, UK managing director at IG, said: ‘With ETNs set to launch, we expect a surge in crypto adoption – especially among younger generations already comfortable with digital assets. 

‘This could mark the start of a new phase of mainstream crypto investing in the UK.’

He added: ‘Unlike ETFs, which allow investors to directly own underlying assets, ETNs are debt instruments that track the asset’s price, providing regulated access without the need for direct ownership. 

‘Although crypto ETFs are more commonly owned globally, they remain banned in the UK.’

ETNs, are a type of exchange traded product, or ETP, that are not backed by the underlying asset – in this case cryptocurrencies. 

These products are debt instruments that track the price of the underlying crypto asset, and promise a return based on the asset’s performance.

ETNs are deemed a safer option than holding cryptocurrency directly by 32 per cent of people, but they do come with credit risk.

Crypto ETFs will remain banned in the UK for the time being. The FCA’s fund framework would need to be updated before the ban could be lifted, the FCA said.

The launch of crypto ETNs also means that for the first time in the UK, crypto investors might be able to hold cryptocurrencies within their Isa and Sipp wrappers, meaning that they will be free from tax within the two wrappers’ respective allowances.

In theory these products can be held within these wrappers, but HMRC has so far yet to confirm this. It did not respond in time for comment. 

Healy said: ‘HMRC has not formally confirmed that crypto ETNs can be held within Isas or pensions. We expect guidance soon and see no reason why it would not be possible.’

A fifth of people said the ability to hold crypto within these tax wrappers would make them more likely to invest in the digital currencies.

Some 41 per cent of people in total said they were in favour of allowing these crypto ETNs to be held within Isa wrappers, compared with 20 per cent who said it should not be allowed, while 37 per cent supported their inclusion in pensions, versus 21 per cent against.

Healy said: ‘Crypto ETNs represent a significant step forward for the UK market, opening access to millions of investors who have previously been cautious or excluded

‘Holding crypto ETNs in tax-efficient wrappers like Isas and pensions would be a major milestone for UK retail investors, allowing gains to grow tax-free or tax-deferred and simplifying reporting.’ 

‘That said, ETNs are just one part of the puzzle. To fully unlock crypto’s potential, the UK needs a proper regulatory framework – and it needs it fast, or we risk falling far behind global peers.

‘It’s also crucial that the government considers allowing crypto ETFs, which are currently banned in the UK but offer greater flexibility and liquidity.’

In recent days, the price of bitcoin has hit another record, surpassing $125,000 a coin.  

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