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A French asset manager is set to launch an EU-regulated fund that closely tracks the price of bitcoin, marking one of the first times that investors will be able to access the hyper-volatile asset through mutual funds across the bloc.
Paris-based Melanion Capital, a derivatives and computer-driven fund manager that has been expanding into digital assets, has recently received approval from the French regulator to launch an exchange-traded fund that complies with the EU standards known as Ucits.
The fund will track a basket of up to 30 stocks in sectors such as cryptocurrency mining and blockchain technology, which Melanion says is up to 90 per cent correlated to the price of bitcoin.
The launch highlights how fund firms are becoming increasingly creative in the face of financial regulators who are often sceptical or slow-moving when it comes to the fast-evolving world of digital assets.
“I haven’t seen any funds launched yet that are focused on digital assets under the Ucits umbrella,” said Winston Penhall, a funds lawyer at Keystone Law in London. How regulators view bitcoin and other cryptocurrencies is “all somewhat up in the air”, he added.
Ucits funds, which are sold across the EU and are also popular in Asia and Latin America, are seen as an international gold standard of fund regulation. They form the bulk of European mutual funds and offer high levels of investor protections. But their rules were first established more than 30 years ago and do not directly address cryptocurrencies like bitcoin.
Most national regulators interpret the rules to mean digital assets cannot be directly held in funds, unless they are linked to listed securities. That makes it almost impossible to launch a Ucits fund investing predominantly in bitcoin that can be sold across the bloc and come with safeguards for consumers.
“Most pipes of the traditional financial system stop at access to bitcoin,” said Melanion CEO Jad Comair. “The ETF was a real challenge because of the sensibilities and politics currently surrounding bitcoin and bitcoin investing.”
Among the top holdings in Melanion’s index, which the fund will track and which is calculated by German fintech Bita, are stocks such as crypto miners Argo Blockchain and Riot Blockchain, investment management firm Galaxy Digital, led by entrepreneur Mike Novogratz, and broker Voyager Digital. Stocks are weighted based on how sensitive they are to movements in the bitcoin price.
Ireland’s central bank last year said that it was “cognisant of both the important opportunities and material risks associated with crypto-assets”. However, EU regulator Esma noted in March this year that “some crypto assets are highly risky” and that most are unregulated in the EU.
A number of exchange-traded notes and products that track bitcoin exist, such as the $242m Wisdom Bitcoin ETP. While they are regulated as securities, they do not have the coveted Ucits wrapper.
In the US a range of fund firms, including Cathie Wood’s Ark Invest, have unveiled plans for bitcoin ETFs, although the Securities and Exchange Commission has yet to grant approval.
The French fund, called the Melanion BTC Equities Universe Ucits ETF, will be listed on Euronext in Paris and will charge a fee of 0.75 per cent.
laurence.fletcher@ft.com
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