The European Union’s financial regulatory body, the European Securities and Markets Authority (ESMA), is considering incorporating cryptocurrencies such as Bitcoin (BTC) into the region’s vast investment landscape.
In this regard, the authority is focusing on possible Undertakings for Collective Investment in Transferable Securities (UCITS) that can diversify their portfolios to include cryptocurrencies among other asset classes.
In a guideline published on May 7, ESMA initiated discussions with industry experts to gather insights and opinions on the feasibility and possible impact of integrating cryptocurrencies into UCITS.
UCITS generally consists of mutual, exchange-traded, or money market funds governed by EU regulations. However, they also attract non-EU investors seeking exposure to the European market.
“To this end, ESMA seeks stakeholders input on a number of questions, inter alia, to gather
insights on the manner and the extent to which UCITS have gained direct and indirect
exposures to certain asset classes that may give rise to divergent interpretations and risk
for retail investors (e.g. structured/leveraged loans, catastrophe bonds, emission
allowances, commodities, crypto assets, unlisted equities),” ESMA said.
Interested stakeholders have until August 7 to submit their comments, potentially paving the way for UCITS to become one of the largest mainstream funds with exposure to crypto assets.
Difference from Bitcoin ETFs
It’s worth noting that despite the existence of products such as Bitcoin exchange-traded funds (ETFs), which offer direct exposure to cryptocurrency investments, UCITS differs significantly.
Instead of a singular crypto-focused fund, UCITS investments are poised to adopt a diverse approach, potentially encompassing multiple funds with varying allocations in cryptocurrencies.
Therefore, such a strategy will likely align with existing EU regulations, which prohibit the establishment of entirely autonomous crypto-centric investment vehicles. If passed, it remains to be seen how the product impacts Bitcoin’s price, considering that the ETF rollout in the United States contributed to BTC hitting a new record high in March 2024 of over $73,000.
Indeed, the EU has been moving to offer a streamlined regulatory outlook for managing cryptocurrencies. For instance, in 2023, the region passed the Markets in Crypto Assets (MiCA) regulation.
Overall, the crypto measures seek to enhance legal certainty for businesses and foster increased regional investment.
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