EU Regulators Mull Crypto Exposure for Trillion-Euro Investment Funds

The European Securities and Markets Authority (ESMA), the EU financial and crypto markets watchdog, is seeking industry feedback on whether the UCITS funds investment market should be expanded to include crypto.

Should crypto-asset exposure be added to a €12 trillion investment product market in the EU?

Experts have until tomorrow (August 7) to provide feedback to ESMA on the merits of allowing direct UCITS exposure to crypto-assets (link in comments).

UCITS funds have €12 trillion… pic.twitter.com/s5rJnJRaUA

— Patrick Hansen (@paddi_hansen) August 6, 2024

UCITS, or Undertakings for Collective Investment in Transferable Securities, are regulated investment products created to protect investors. Comprising mutual, exchange-traded or money market funds, UCITS are governed by EU regulations but accessible to global investors. With €12 trillion in assets under management, UCITS are the most common investment product in the EU.

Introducing crypto assets into this vast market could significantly impact both traditional finance (TradFi) and the cryptocurrency industry. And with its ‘Call for Evidence’, ESMA aims to address the uncertainties surrounding the eligibility of various crypto assets under the UCITS framework in order to assess the potential risks and benefits of such a big move.

Institutional Appetite for Crypto in EU Grows

The potential opening of UCITS funds to cryptocurrencies is not the only sign of interest in crypto assets from the EU.

Capula Management, Europe’s fourth-largest hedge fund, invested $464 million in spot Bitcoin (BTC) exchange-traded funds (ETFs), according to public disclosures filed on Aug. 5.

Capula is based in the United Kingdom and manages upward of $30 billion in investor assets. According to the filing, Capula owns shares worth more than $464 million in total, reflecting its portfolio as of June 30.

Capula’s recent SEC filing reveals a holding of $253 million in BlackRock’s iShares Bitcoin Trust (IBIT) and $211 million in Fidelity’s Wise Origin Bitcoin Fund (FBTC).

The current market downturn has halted inflows into Bitcoin ETFs, with the funds experiencing net outflows of $237.4 million on Aug. 2 and $168.4 million on Aug. 5, respectively. However, BlackRock’s IBIT and Fidelity’s FBTC are emerging as blue chips among Bitcoin ETFs, with strong uptake among professional financial advisers.

The approval of Bitcoin ETFs in January 2024 catalyzed a surge in institutional investment. On July 26, the State of Michigan Retirement System, which oversees some $143.9 million in pension fund assets for state employees, also invested $6.6 million in the ARK 21Shares Bitcoin ETF.