ETP Decisions from Jupiter’s Compliance Team

What is ETP in Short?

There are over one hundred crypto ETPs and ETFs. An ETP is a category of investment tools usually backed by an asset like gold, commodities, or cryptocurrency. For example, Fidelity Physical Bitcoin (FBTC) and 21Shares Bitcoin (ABTC) are crypto ETPs.

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Jupiter’s ETP Decision

Jupiter’s Compliance Department blocked the investment team from holding a product traded on a cryptocurrency exchange in an Ireland-based Ucits fund. This decision once again highlighted the conflict between regulatory authorities in different countries of the EU. While Ireland does not permit crypto investments in Ucits funds, Germany’s regulatory body sometimes takes a more flexible approach.

Jupiter’s investment team for the 565 million euro gold and silver fund bought the Ripple XRP ETP for $2,571,504 in the first half of 2023. However, uncertainties in the EU’s approach to crypto assets continue to limit investment firms’ activities in this area.

Jupiter’s compliance team cancelled the crypto ETP investment, highlighting the divergent regulatory approaches in the EU.

Jupiter’s Compliance Department blocked the holding of a product traded on a cryptocurrency exchange in an Ireland-based Ucits fund. This situation emphasized the inconsistencies among regulatory authorities in different countries of the EU. While Ireland does not allow crypto investments in Ucits funds, Germany’s regulatory body sometimes showcases a more flexible approach.

Is Europe’s Attitude to Crypto Changing?

Ned Naylor-Leyland, Chris Mahoney, and Joe Lunn, the managers of Jupiter’s Gold and Silver fund, sold Ripple XRP ETP for $2,570,670 in the first half of 2023. This transaction took place before regulatory authorities in Ireland clarified their position on crypto assets.

Ucits funds can invest in non-liquid assets up to a certain percentage of their portfolios, but EU regulators disagree on whether they should include ETPs holding cryptocurrency. Regulators in Ireland and France prefer to prevent Ucits funds from investing in crypto assets. The situation is slightly different in Germany; Ucits funds cannot directly invest in crypto assets. However, they have permission to invest in crypto ETPs as long as they reflect the underlying asset one-for-one.

DWS’s 24 million euro Fintech fund has been in VanEck Ethereum ETN since late 2022. This fund makes up 0.35% of the Ucits fund’s portfolio. Daniela Gombert, the manager of the Germany-based Fintech fund, also manages other funds of DWS. DWS stated that it has a “select number” of multi-asset funds that are able to invest in cryptocurrencies. However, none of them are currently investing in cryptocurrencies.

Thomas Schüssler, DWS’s co-head of global equities, recently stated that cryptocurrency is “like a risky gold” and has a low correlation with other assets. Schüssler pointed out that cryptocurrency could make a significant difference in fund performance but emphasized that it should only be purchased in specific scenarios. These statements come at a time when interest in cryptocurrencies is increasing, and investors are trying to determine their strategies for coping with this new asset class.

On the other hand, UK-based asset manager Ruffer used its Guernsey-based closed-end fund, the Ruffer Investment Company, to make a surprise investment in Bitcoin in 2020. Ruffer sees Bitcoin as a “small but potent insurance policy” and stated this was primarily a defensive move. This situation shows that interest in cryptocurrencies is increasing at the institutional level, stepping outside traditional asset management strategies.

The European Commission last year instructed the European market observer to review the directive of Ucits compatible assets to evaluate possible changes in asset classes exposed to funds, including crypto assets. This move could be seen as a step toward opening more space for cryptocurrencies in Europe’s financial regulations, highlighting that the position of cryptocurrencies within the traditional financial system is becoming increasingly important.

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