The London Stock Exchange has disclosed its intentions to consider listing Bitcoin and Ethereum exchange-traded notes (ETNs) by the second quarter of this year, as indicated in a market notice dated March 11. This decision comes on the heels of the UK's Financial Conduct Authority (FCA) granting approval for Recognised Investment Exchanges (RIEs) to establish a dedicated market segment for crypto asset-backed ETNs, as outlined in a statement released on the same day.

Crypto ETNs, similar to exchange-traded funds (ETFs), track an underlying asset or index, but unlike ETFs, they function as debt securities, essentially acting as bonds. Typically, ETNs do not hold the assets they are linked to and are backed by a financial institution. Profits from ETNs are realized upon note maturity or when investors sell their holdings.

The announcement coincides with the recent impressive performance of Bitcoin, reaching an all-time high of over $71,000, and Ethereum also experiencing an upward trend that has propelled its value above $4,000.

The Crypto ETNs will be exclusively available for trading by professional investors in compliance with the UK's FCA regulations prohibiting the sale of crypto derivatives and ETNs to retail consumers. The financial regulator has specified that these products will be accessible only to professional investors, such as authorized investment firms and credit institutions operating in financial markets.

The FCA has reiterated its cautionary stance on cryptocurrencies as high-risk and unregulated investment products. Consequently, the ban on trading crypto derivatives for retail investors remains in effect due to the potential risks involved.

According to the London Stock Exchange, the crypto ETNs must be physically backed and non-leveraged. Issuers are required to have a publicly available market price or value measure of the underlying asset, with Bitcoin or Ethereum serving as the digital assets underpinning the ETNs.

Moreover, the exchange has stressed that the underlying digital assets must primarily be held in secure storage, such as a cold wallet. Additionally, these assets must be safeguarded by a custodian compliant with anti-money laundering (AML) regulations in the UK, EU, Switzerland, or the US.

The London Stock Exchange has asserted its authority to reject applications from any issuer, maintaining discretion in the listing process to ensure compliance with regulatory standards and market integrity. This move marks a significant step towards integrating crypto assets into traditional financial markets, providing professional investors with exposure to leading digital currencies through regulated and secure investment vehicles.