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The UK’s decision to open up cryptocurrency funds to retail investors has ignited a price war, with fees for bitcoin-linked products slashed to as low as 0.05 per cent.
The cut-throat battle for digital asset exchange traded notes (ETNs), which echoes a similarly aggressive fight for market share in the US when it opened up access in January 2024, means it can be cheaper to hold cryptocurrency in a regulated product than the vast majority of equity and bond funds.
It comes at a time when some cryptocurrency ETNs, previously only available in the UK to professional investors, still charge up to 2.5 per cent a year in fees — 50 times more than the cheapest bitcoin vehicle. These notes track an underlying digital currency and are listed and traded on an exchange.
The Financial Conduct Authority, the UK regulator, lifted its ban on retail investors buying these exchange traded products this month, softening its stance against the investments after attempting to shield small investors from volatility and fraud.
The lifting of the ban means investors can hold any of the permitted London-listed crypto ETNs in a stocks-and-shares Isa if they buy in the current tax year. From April 6 next year, they will be reclassified as qualifying investments for the Innovative Finance Isa.
The cheapest bitcoin fund is managed by Bitwise, which has cut the annual fee for its Core Bitcoin ETP from 0.2 per cent to 0.05 per cent “effective for six months and then continuing until further notice”.
This undercuts 21Shares, which has slashed fees for its Core Bitcoin and Ethereum Core Staking ETPs to 0.1 per cent.
Both moves came after Fidelity reduced charges on its Physical Bitcoin ETP to 0.25 per cent and Invesco cut the levy for its equivalent vehicle to 0.1 per cent until the end of 2025.
BlackRock, which dominates the crypto exchange traded fund (ETF) market in the US with its $92bn iShares Bitcoin Trust, also waded into the UK market by listing its European iShares Bitcoin ETP in London with its usual 0.25 per cent fee discounted to 0.15 per cent until January.
The cheapest ether fund remains the CoinShares Physical Staked Ethereum ETP, which is the only exchange traded product in Europe to have no fee, according to data from ETFbook.
It is able to do this because CoinShares uses some of the income it earns from staking — the process of locking up ether to help run the blockchain and earn rewards — to offset the fund’s expenses. Staking is not possible for bitcoin.
Although many of the larger investment brokers such Hargreaves Lansdown and AJ Bell do not yet offer crypto ETNs, early trading data suggests some retail investors are gaining access via platforms such as Interactive Investor, Trading 212, Killik & Co and Interactive Brokers.
Trading volumes for bitcoin ETPs on the London stock exchange have averaged $7.2mn a day since retail access became available on October 17, up from $2.1mn earlier in October when they were only available to professional investors, according to analysis of data from Bitwise. Ether ETNs likewise saw a jump from $1.9mn a day to $4.4mn.
WisdomTree’s Physical Bitcoin and Physical Ethereum vehicles have seen the highest turnover since retail access was opened up, followed by iShares, according to data from Morningstar.
“We believe this reiterates the exceptional level of appetite for exposure to these assets,” said Russell Barlow, chief executive of 21Shares, commenting on the jump in trading volumes.
Despite finally permitting retail investors to buy crypto ETNs, the FCA this week issued a fresh statement ordering issuers not to offer customers any incentives to invest, to conduct “robust” appropriateness assessments, offer cooling-off periods and highlight relevant risk warnings.