How significant and important is the participation of the LSE for exchange-traded notes based on Bitcoin and Ethereum? For crypto, is LSE more of a partner, a competitor, or what?
The participation of the London Stock Exchange in trading exchange-traded notes (ETN) based on Bitcoin and Ethereum is an extremely important and significant event for the cryptocurrency industry. LSE is one of the oldest and most authoritative financial markets in the world, and its decision to trade in such instruments will provide additional legitimacy to cryptocurrencies in the eyes of traditional institutional investors.
As for the crypto industry, LSE acts more like a partner. It opens up new opportunities for investing in Bitcoin and Ethereum, which should contribute to the further growth and development of these cryptocurrencies.
Unlike exchange-traded funds (ETFs), which represent a stake in a basket of real assets, exchange-traded notes (ETNs) are essentially loans made by investors to an issuer. By purchasing an ETN, investors do not acquire direct ownership of the underlying asset, such as Bitcoin or Ethereum. Instead, they lend money to the issuer, who agrees to pay a return based on changes in the price of the underlying asset (bitcoin or ether). That is, instead of the cryptocurrencies themselves, investors receive a bank debt obligation with its profit tied to the crypto price. The bank itself decides how to hedge its risks under these obligations.
However, the structure of the ETN may vary. In some cases, there is no real buying of underlying cryptocurrencies behind them, so they are similar to settlement futures, without impacting the spot market. In other cases, as in the example of UK-based XBT Provider Bitcoin Tracker One, real bitcoins are purchased for each note issued, which exerts a direct impact on the demand and price of BTC.
Thus, ETNs are a relatively new vehicle for institutional investment in cryptocurrencies that can be tied either to the price of an asset alone, or directly backed by actual purchases of Bitcoin or Ether.