BTC for your ISA or SIPP: FCA to lift ban on Crypto ETNs

The UK's financial regulator, the Financial Conduct Authority (FCA), is to allow everyday investors to access a new type of crypto investment: Exchange-Traded Notes (ETNs). This marks a significant change in policy and could open up a safer and more regulated way for UK individuals to gain exposure to cryptocurrencies like Bitcoin and Ethereum.

A public consultation is now underway and will run until July 2025. If implemented, this move would give retail investors access to crypto ETNs for the first time, potentially as early as 2026.

Why Is This Important?

Until now, UK retail investors have had limited regulated options to gain exposure to cryptoassets. Many have turned to crypto exchanges or mobile trading apps, often without fully understanding the risks involved in managing digital wallets, private keys, or trading on volatile markets.

The FCA's proposal is a recognition that demand for crypto exposure remains strong, and that consumers may benefit from a more secure and regulated framework.

But before diving into the policy details, it's important to understand the types of crypto investing that exist today.

Understanding the Basics: Spot, Derivatives, and ETNs

What Is Spot Trading?

Spot trading refers to buying and selling an asset for immediate delivery. In the context of crypto, this means purchasing actual Bitcoin, Ethereum, or another token on an exchange and holding it in a wallet.

This is what most people do when they use platforms like Coinbase or Binance. You own the crypto directly, and you are responsible for storing it safely, often using a private key or hardware wallet.

Spot trading is the most straightforward form of crypto investing, but it comes with important risks. These include exchange hacks, losing access to your wallet, or sending funds to the wrong address. It is also largely unregulated and offers no compensation if something goes wrong.

What Are Crypto Derivatives?

Crypto derivatives are financial instruments like futures or perpetual swaps (often called "perps"). These contracts allow you to speculate on the price of a crypto asset without actually owning it.

Derivatives are complex and often involve leverage. This means you can gain or lose large sums of money based on small price movements. The FCA banned crypto derivatives for retail investors in 2021 because of their high risk and the potential for significant losses.

Where Do Crypto ETNs Fit In?

Crypto Exchange-Traded Notes (ETNs) are a regulated financial product that offers exposure to the price of a cryptocurrency without requiring the investor to buy or hold the asset directly.

An ETN is issued by a financial institution and traded on a traditional stock exchange, much like a share or an ETF. When you buy a crypto ETN, you are purchasing a note that tracks the value of a cryptocurrency. You do not own the crypto itself, but your returns (or losses) will mirror its performance.

Unlike derivatives, ETNs do not involve leverage and are typically held for medium- or long-term investment. Unlike spot trading, there is no need for a digital wallet or any interaction with a crypto exchange.

What Is the FCA Proposing?

The FCA is proposing to lift its current ban on the sale of crypto ETNs to retail investors. Under the proposed rules:

• Crypto ETNs must be listed on a recognised investment exchange, such as the London Stock Exchange.
• The products will be subject to strict risk warnings and marketing rules.
• They will remain unprotected by the Financial Services Compensation Scheme (FSCS).
• Crypto derivatives will remain banned for retail investors.

The FCA states that the market has matured since the original ban was introduced and that regulated ETNs may provide a safer route for investors than unregulated platforms or complex derivatives.

Why Is the FCA Making This Change?

There are several reasons behind this policy shift:

1. Market Maturity
   The crypto market has developed significantly since 2021. Infrastructure is more robust, pricing is more transparent, and institutional interest has increased.
2. Global Alignment
   Other markets, such as the United States and Europe, have already introduced regulated crypto products for retail investors. The UK risks falling behind if it maintains a more restrictive stance.
3. Consumer Demand
   Despite the risks, UK consumers continue to seek crypto exposure. The FCA believes offering a regulated option may reduce harm compared to the status quo.
4. Government Strategy
   The UK government has signalled support for innovation in financial services, including digital assets. The FCA’s move aligns with this broader economic agenda.

What Are the Risks and Safeguards?

Crypto ETNs carry risk, but the FCA believes these risks can be mitigated through regulation. Key safeguards include:

• Restricting listings to FCA-recognised exchanges
• Enforcing the financial promotions regime to prevent misleading advertising
• Requiring clear and prominent disclosures that explain investors could lose all their money

Investors should note that ETNs still carry issuer risk. If the institution behind the ETN fails, you could lose your investment, and there is no FSCS protection. ETNs are also subject to the same market volatility as the underlying cryptoasset.

How Do ETNs Compare to Other Crypto Investments?

ETNs may suit investors who want crypto exposure in a familiar investment account, without dealing with private keys or high-risk speculation.

What About Tax on Crypto ETNs?

One of the most significant advantages of regulated crypto ETNs is that, unlike direct crypto holdings or trading on offshore platforms, they may be eligible for inclusion in tax-efficient investment accounts like ISAs (Individual Savings Accounts) and SIPPs (Self-Invested Personal Pensions).

Current Tax Treatment of Crypto

Under current HMRC guidance, profits from directly buying and selling cryptoassets are typically subject to Capital Gains Tax (CGT). This includes spot trading via centralised exchanges or DeFi platforms, and even swaps between crypto tokens. Most retail investors must manually report gains and losses to HMRC, which can be administratively burdensome and error-prone.

Furthermore, directly held crypto is not eligible to be held inside an ISA or pension, meaning every gain is taxable above your CGT allowance.

ETNs Offer a Cleaner Tax Path

By contrast, crypto ETNs (being listed securities traded on recognised exchanges) may qualify for inclusion in stocks and shares ISAs or SIPPs, depending on provider rules.

If permitted:

• Any gains made inside an ISA are entirely tax-free, with no CGT or income tax to pay.
• Dividends (if any) and interest on ETNs inside a SIPP are also free from income tax.
• There is no need to report individual gains or losses to HMRC for investments held within tax wrappers.

This opens up a major opportunity for investors who want to allocate a small portion of their tax-free allowance to crypto exposure, without taking on the custodial risk or reporting headache of managing crypto directly.

A Word of Caution on Eligibility

Although ETNs are technically eligible for ISAs and SIPPs if they are listed on recognised exchanges, platforms and providers may take time to support them. Some brokers may choose not to offer crypto ETNs in their tax-wrapped products due to internal policies or perceived risk.

Additionally, crypto ETNs do not currently pay dividends, and they carry issuer risk and volatility. Investors should not treat them as a core part of long-term pension planning but rather as a speculative satellite position, even when held inside a tax shelter.

Still, for investors already using their ISA or SIPP for thematic or higher-risk exposure (such as biotech, emerging markets, or commodity ETNs) crypto ETNs could offer a familiar way to allocate a small portion of tax-advantaged capital toward digital assets.

What About Fees?

Fees are a crucial consideration when evaluating crypto ETNs, especially since they can vary significantly between providers and directly impact your returns over time.

Types of Fees to Expect

Crypto ETNs typically come with annual management fees, also known as total expense ratios (TERs). These cover the cost of issuing, maintaining, and hedging the note against the underlying cryptoasset. For context:

• Traditional ETFs tracking stock indices often charge between 0.05% and 0.25% per year.
• Commodity or thematic ETNs tend to charge more, often in the range of 0.75% to 1.5% annually.
• Crypto ETNs are likely to sit at the upper end, with fees between 1.0% and 2.5% not uncommon based on products seen in other markets like Germany, Sweden, or Switzerland.

You may also face:

• Platform fees, depending on your broker or ISA/SIPP provider
• Bid–ask spreads on thinly traded ETNs, which act as a hidden cost when entering or exiting a position
• FX conversion fees if the ETN is priced in a foreign currency and your account is GBP-denominated

Fee Drag Adds Up

For example, an annual fee of 2% might sound modest, but if Bitcoin returns 8% in a year and the ETN charges 2.5%, you’re losing over 30% of your upside to fees before tax or currency conversion. That kind of drag makes fee awareness essential.

It’s also worth noting that some lower-cost crypto ETFs and ETNs already exist in European markets. Once the UK permits these products, competition may drive fees down, especially if major issuers like iShares or WisdomTree launch products for the UK retail market.

What Happens Next?

• The FCA’s consultation is open until early July 2025.
• A final decision is expected later this year.
• If the proposals are adopted, crypto ETNs could be available to UK retail investors in 2026.

What Should Investors Do Now?

If you’re interested in investing in crypto but wary of using unregulated platforms, ETNs could offer a simpler and safer entry point. However, you should:

• Read all risk warnings carefully
• Only invest money you can afford to lose
• Understand that you do not own any actual cryptocurrency
• Avoid assuming that regulation means low risk

Even with regulation, crypto remains a highly volatile asset class that is unsuitable for most people’s core savings or retirement funds.

Final Thoughts

The FCA’s proposal to lift the ban on crypto ETNs reflects a more measured approach to digital assets. Instead of blocking access entirely, the regulator is seeking to offer UK consumers a route into crypto markets through familiar investment structures and with more protection than unregulated alternatives.

Whether or not you choose to invest, understanding how products like ETNs differ from spot trading or derivatives is crucial in making informed decisions.