Bitcoin enters uncharted territory as it surges above $72,100

UK’s financial services regulator opens door for institutional investors to apply for crypto asset-backed ETNs

The Bitcoin rally began in January, after the US Securities and Exchange Commission approved spot Bitcoin exchange-traded funds. AFP
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Bitcoin, the world’s largest cryptocurrency by market capitalisation, surged past $72,100 to reach a record high on Monday, driven by the UK’s financial services regulator opening the door to applications for crypto asset-backed exchange-traded notes (cETNs) to trade on the London Stock Exchange.

The Financial Conduct Authority said it would not object to requests from recognised investment exchanges to create a UK-listed market segment for crypto asset-backed ETNs (CETNs), including Bitcoin and Ethereum.

“These products would be available for professional investors, such as investment firms and credit institutions authorised or regulated to operate in financial markets only,” the FCA said on its website.

“Exchanges will need to continue to make sure sufficient controls are in place, so trading is orderly and proper protection is afforded to professional investors. CETNs must meet all the requirements of the UK listing regime, for example on prospectuses and ongoing disclosure.”

In response, Bitcoin surged to $72,147.98 as of 3.55pm UAE time on Monday. So far this year, the cryptocurrency has jumped almost 70 per cent.

Ethereum also broke through the key $4,000 level on the back of the FCA announcement and could be on track to beat its November 2021 record of $4,891.

The second-biggest cryptocurrency by market cap jumped 2.76 per cent and is currently trading at $4,048.83.

ETNs are typically issued by financial institutions and are traded on stock exchanges. They are types of unsecured debt securities that track an underlying index of securities, according to Investopia.

They can be compared to exchange-traded funds (ETFs) – a low-fee basket of securities consisting of stocks, bonds, commodities or other financial assets that track global markets. Unlike ETFs, however, ETNs do not own the underlying asset – in this case, crypto.

The recent cryptocurrency bull run has been fuelled by strong demand for US-listed spot Bitcoin ETFs, which the US Securities and Exchange Commission approved in January.

The approval marked a pivotal moment for the cryptocurrency sector, clearing the way for a regulated path for institutional and retail investor participation in the cryptocurrency asset class – and signalling the end of the sector's “Wild West” era.

The SEC approved 11 spot Bitcoin ETFs offered by major asset management companies including BlackRock, VanEck, Fidelity, Franklin Templeton and Cathie Wood’s ARC.

However, the UK's FCA said that the cETNs would not be available to retail investors as crypto assets are "high risk and largely unregulated".

"The FCA continues to believe cETNs and crypto derivatives are ill-suited for retail consumers due to the harm they pose," it said.

"As a result, the ban on the sale of cETNs (and crypto derivatives) to retail consumers remains in place."

The expected Bitcoin halving next month, when the amount paid to miners is slashed in a programmed move every four years to reduce supply and maintain its scarcity value, is adding to the current rally.

Last Tuesday, Bitcoin hit $69,202, eclipsing its previous record of $68,991.85 set in November 2021.

Bitcoin's aggressive gains have triggered speculation around its price reaching as high as $123,056, according to Lukman Otunuga, senior market analyst, at FXTM.

However, the psychological level of $80,000 could act as a possible resistance – but at this point, the cryptocurrency is in uncharted territory, Mr Otunuga said.

"Regarding the average price prediction for BTC of $123,056, this will require the cryptocurrency to rally another 60 per cent from its current levels," he added.

"While the timeline is unclear, this could be a possibility given how prices have rallied over 55 per cent year-to-date and remain heavily supported by the ETF inflows and optimism around the upcoming halving in April.”

Updated: March 11, 2024, 12:47 PM