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EU Considers Including Crypto in its 12 Trillion Euro Investment Market

May 9, 2024 at 11:48

The European Union’s financial regulatory body, the European Securities and Markets Authority (ESMA), is actively soliciting insights from industry experts on the potential integration of cryptocurrencies into its 12 trillion euro investment market.

The ESMA has invited stakeholders to weigh in on the inclusion of various asset classes into the Undertakings for Collective Investment in Transferable Securities (UCITS) funds. These funds, which currently encompass a broad array of investment products including mutual funds, exchange-traded funds, and money market funds, are governed by EU regulations but are also accessible to non-EU investors. The discussion extends to assets like structured or leveraged loans, catastrophe bonds, emission allowances, commodities, crypto assets, and unlisted equities.

Stakeholders have a deadline until August 7 to submit their feedback. Should the proposal receive approval, UCITS would become one of the most significant mainstream investment funds to incorporate cryptocurrency.

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This move comes as other global markets, including the United States and Hong Kong, begin to embrace cryptocurrencies, evidenced by the recent approval of spot Bitcoin exchange-traded funds. Unlike these solely crypto-focused ETFs, UCITS funds feature diversified investments tailored to the risk profiles of the funds.

Under the proposed changes, UCITS would not create funds exclusively focused on cryptocurrencies but would instead incorporate a percentage of crypto assets into various funds.

Nicolas Streschinsky, the Head of DeFi at Trilitech, a Tezos blockchain research and development hub, expressed optimism about the integration. He remarked that even a modest allocation of crypto assets in UCITS funds could significantly expand the investor base for cryptocurrencies, particularly utility tokens utilized for transaction fees on major blockchains.

Currently, EU regulations do not allow for standalone crypto-centric investment products, forcing investors to access these assets through exchange-traded notes.

The European Union has established a stringent regulatory framework for cryptocurrencies with its Markets in Crypto-Assets Regulation (MiCA), making it a pioneer in formal crypto regulation. A key part of ESMA’s query involves assessing how the inclusion of certain cryptocurrencies might interact with the MiCA framework.

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