European Union Eyes Crypto Integration into Its €12 Trillion Investment Market, Seeks Expert Guidance

Expert views are now being sought on whether the European Union (EU) should officially consider crypto assets ‘eligible investments’ in the region, potentially bringing Bitcoin and alt coins into the EU’s multi-trillion dollar investment fund market. 

The EU’s financial markets regulator, ESMA, has released a call for evidence to inform its review into the regulatory framework—the Undertakings for Collective Investment in Transferable Securities (UCITS) Eligible Assets Directive (EAD). The UCITS EAD guides which assets are appropriate to include in collective investments—such as managed funds and ETFs—available to EU retail investors, which account for around 75% of funds held.

ESMA will accept feedback from industry stakeholders until 7 August 2024.

Related: ECB Officials Say Bitcoin Fair Value Still Zero Regardless of ETFs

Crypto Among Various Asset Classes Up For Feedback

The ESMA review aims to develop “recommendations on how the EAD should be revised to keep it in line with market developments.” 

Among those developments is the rise of crypto assets, but the regulatory body is also seeking feedback on asset types such as structured/leveraged loans, catastrophe bonds, emission allowances, commodities, and unlisted equities.

Eligibility for UCITS assets comes with strict criteria related to liquidity, risk-diversification and the ability of funds to redeem units or shares at the request of investors and calculate net asset values (NAV). 

ESMA’s call for evidence document also highlights questions around how to interpret the eligibility of products (ETPs and derivatives) that offer indirect exposure to assets that would not be eligible for direct investment.

It lists 18 potential asset classes, including crypto, and asks respondents to provide evidence on the merits of allowing either a direct or indirect exposure to each asset via UCITS. With regard to crypto, the call for evidence document clarifies:

Where relevant, please specify what type of crypto assets and whether the implementation of MICA will change anything in terms of your assessment. With respect to indirect exposures, ESMA is particularly interested in stakeholder input on exchange-traded products including ETFs with crypto assets as an underlying.

ESMA

MiCA stands for Markets in Crypto Assets Regulation, a measure introduced by ESMA which will take effect from July 2024 and require EU nation regulators to licence and monitor crypto firms and stablecoin issuers. 

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