By
Bena Ilyas
May 17th, 2024
ESMA wants feedback by August 7, 2024, about whether UCITS can include assets other than traditional stocks and bonds.
The European Union (EU) is taking a cautious step towards crypto adoption. The European Securities and Markets Authority (ESMA), the bloc’s financial watchdog, is asking for expert views on including crypto assets in the €12 trillion ($12.8 trillion) Undertakings for Collective Investment in Transferable Securities (UCITS) market.
The strategic move highlights a possible shift in the EU’s view on cryptocurrencies, which has often leaned towards tighter regulations. The EU was one of the first areas to suggest a full plan for crypto assets, called the Markets in Crypto-Assets Regulation (MiCA), which is still under development.
UCITS are a group of investment funds created to make investment transactions easier and more secure. These funds, which can be structured as mutual funds, exchange-traded funds, or money market funds, are regulated by the European Union but available to investors worldwide.
ESMA is asking for feedback, with a deadline of August 7, 2024, on whether UCITS can include exposure to different types of assets beyond the usual stocks and bonds. This list includes structured loans, leveraged loans, catastrophe bonds, emission allowances, commodities, unlisted stocks, and importantly, cryptocurrencies.
ESMA’s Cautious Crypto Inclusion
If the European Union’s financial regulator approves this proposal, it will not create a standalone investment fund entirely composed of cryptocurrencies. Instead, it would pave the way for the creation of multiple investment funds that include varying percentages of cryptocurrency assets, catering to investors with different risk preferences.
The European Union’s regulations currently limit the availability of independent, crypto-focused investment products. Investors who want this kind of exposure have to use exchange-traded notes (ETNs), which are debt-based instruments that follow the price of underlying assets like cryptocurrencies.
ESMA’s decision lines up with the trend of regulators becoming more open to crypto in traditional investments. The recent approval of spot Bitcoin exchange-traded funds (ETFs) in the US and Hong Kong shows this shift. But it’s important to understand the difference between these crypto-focused ETFs and the varied nature of UCITS funds.
MiCA’s Role in UCITS Regulation
The ESMA is examining how the proposed MiCA regulation could affect including specific cryptocurrencies in the UCITS framework. MiCA aims to create a comprehensive regulatory system for crypto assets across the EU. It’s unclear how these two rules will work together and if they will make it easier to integrate crypto into the UCITS market.
The EU’s exploration of crypto inclusion within UCITS is a significant development. It suggests the EU may be more open to cryptocurrencies, which could lead to wider crypto adoption in European investments. However, with MiCA still evolving and questions about how to add crypto to UCITS, the path to mainstream crypto integration in the EU will likely be gradual and cautious.