The UK's cryptocurrency exchange-traded notes (ETNs) have experienced low trading volumes since their launch on the London Stock Exchange (LSE) on May 28. Despite this, industry experts believe that opening up these products to retail investors would be a "game changer" for the market. Currently, only professional investors are permitted to trade these products, which are backed by bitcoin and ether.

21Shares, one of the issuers, offers four bitcoin and four ether-backed cross-listed products in the UK. WisdomTree manages two bitcoin and two ether ETNs, while Invesco offers two bitcoin-backed products. To be listed on the LSE, crypto ETNs must be physically backed, non-leveraged, and offer exposure to only bitcoin or ether. However, the total turnover for all products combined amounts to just $504,880 as of June 6, with WisdomTree accounting for 59% of the trading volume and 21Shares 41%. Invesco's products have witnessed zero trading volume so far.

In comparison, spot Bitcoin ETFs in the US saw $2.5 billion worth of trading volume on Friday alone. However, industry experts believe that the low trading volumes in the UK are "in line with expectations" due to the limited access to professional investors only. 21Shares UK Head Alex Pollak noted that professional traders typically trade over-the-counter or on the most liquid exchange available, which is currently Deutsche Börse Xetra.

Despite the low trading volumes, the Financial Conduct Authority's (FCA) approval for professional investors is seen as a significant step forward in the legitimization and relevance of the asset class for UK investors. Industry experts believe that the FCA's stamp of approval has meant that many wealth and private banking platforms are now actively considering how they can offer or add bitcoin or ether allocations to professional client portfolios.

The development represents a significant step forward in the legitimization and relevance of the asset class for UK investors, and FCA approval could result in greater institutional adoption over time, removing regulatory uncertainty and barriers. However, the ticket sizes for these products are high to ward off retail investors, and understanding amongst UK institutional investors is very low relative to the rest of Europe.

The regulatory landscape in the UK is evolving, with the FCA taking a cautious stance toward the crypto space to ensure investor protection while trying to foster innovation. In 2021, the FCA banned the sale of derivatives and exchange-traded products to retail investors. However, the UK's stance on cryptocurrency regulation has subsequently been evolving, with statements from the FCA in March indicating a willingness not to block requests for crypto ETNs for professional investors.

The London Stock Exchange then announced plans to begin accepting Bitcoin and Ethereum ETN applications in Q2, with crypto ETN trading commencing from May 28. These products offer exposure to bitcoin and ether's price movements, albeit through a slightly different financial structure than a direct ETF. ETNs do not directly own the underlying assets they represent, unlike the US spot Bitcoin ETFs.

Currently, UK retail investors also face hurdles that prevent them from investing directly in US spot Bitcoin ETFs due to regulatory frameworks governing securities in both countries. However, industry experts believe that the availability of crypto ETNs is a positive step forward for the UK, and that more choice for consumers is always good. The potential for Bitcoin ETFs in the UK is significant, providing regulated investment opportunities to a broader audience and potentially unlocking the full potential of the crypto market.