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Secondary Financial Centers Gaining Niche Crypto Edge Through ETFs

The world’s secondary financial centers have been gaining a niche foothold by trading cryptocurrency-based exchange traded funds.

While major financial hubs in the US, UK and Asia remain hesitant to approve crypto ETFs, places like Canada, Sweden, Germany, Switzerland, Jersey, and Liechtenstein have already approved products that invest in individual cryptocurrencies or baskets of them. Australia and India seem poised to be next. For regulatory purposes the products are referred to as exchange traded products or notes in Europe.

Brazil has also made significant headway, authorizing the first Bitcoin and Ethereum ETFs in Latin America. Now, the Brazilian Securities Commission has enabled the approval of the world’s first two decentralized finance ETFs, which invest in a basket of tokens issued by decentralized applications (dApps).

Major reluctance

These places have been gaining an edge as major global financial areas have been more hesitant to accept crypto ETFs trading on their markets. For instance, the US Securities and Exchange Commission has already rejected over a dozen applications for products directly tied to cryptocurrencies, including one from Fidelity earlier this year. 

Last year, the financial regulator approved ETFs investing in Bitcoin futures, which have made many more confident in an eventual spot ETF approval. One justification for this approach is that the futures contracts trade on the regulated Chicago Mercantile Exchange. 

However, European head of digital assets at WisdomTree Jason Guthrie disagrees with this perspective. “Adding one more level of disintermediation doesn’t really change anything,” he said, describing the approach as “disjointed . . . slow and potentially inefficient,” since retail investors can already buy crypto directly on exchanges.

Meanwhile, other leading financial centers, like London, Singapore and Hong Kong still rigidly discriminate between virtual assets, which fluctuates between $1-3 trillion market capitalization, and the $10 trillion ETF industry. While Singapore hopes to become a crypto hub, it has taken a more measured approach, so far banning crypto ads aimed towards the general public. A similar move was recently made by the UK’s advertisement authority. In line with Beijing, Hong Kong banned cryptocurrency transactions in September, but licensed exchanges can still serve professional investors.

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