Crypto Exchange-Traded Products: Navigating the Intersection of Crypto and Securities
In Short
The Situation: Direct ownership of crypto-assets or mere exposure to the value of crypto-assets is an investment decision, with both investment methods requiring specific approaches to mitigate and manage risks effectively.
The Answer: Crypto exchange-traded products ("crypto ETPs") are (traditional) securities that use a traditional financial product to provide investors with exposure to the value of one or more crypto-assets, without requiring direct ownership or management of the underlying crypto-assets.
Looking Ahead: While crypto ETPs in the form of crypto exchange-traded funds ("crypto ETFs") gained momentum in the United States in 2024, crypto ETPs in the form of crypto exchange-traded notes ("crypto ETNs") have seen increased market interest in Europe in 2025, driven by renewed optimism in crypto-assets, as well as both recent and prospective regulatory developments.
Key Features and Structure of Crypto ETPs
Crypto ETFs are a type of investment fund, listed on traditional securities exchanges, tracking the price movements of an underlying crypto-asset. "Spot" crypto ETFs track the crypto-asset's price by holding the actual crypto-asset in reserve and backing each share of the crypto ETF with the associated crypto-asset. "Synthetic" crypto ETFs do not directly hold the crypto-assets but use derivative products to replicate the crypto-asset's price.
Crypto ETNs, on the other hand, are (traditional) debt securities, typically issued by a special-purpose vehicle and listed on traditional securities exchanges, tracking the price movements of an underlying crypto-asset. The return to investors is based on the performance of the underlying crypto-assets, net of fees and expenses, and is delivered upon redemption. Most crypto ETNs are physically backed, with the issuer or its agent purchasing and securing the underlying crypto-assets for the benefit of the noteholders.
Legal and Practical Considerations for Crypto ETPs
Jurisdiction. Issuers of crypto ETPs should give careful consideration to their place of incorporation, the choice of law governing the investment product (i.e., the securities), and which competent authority reviews and approves the offering documentation. This is particularly relevant in the European Union, where Regulation (EU) 2017/1129 ("Prospectus Regulation") requires an approved prospectus for certain public offerings or listings. Under the Prospectus Regulation, issuers may select the competent authority based on their place of incorporation or the place where the public offerings or listings are being made and can then passport the approved prospectus in all Member States of the European Union.
Underlying Assets. While earlier crypto ETPs focused on Bitcoin and Ether, the market now supports a broader range of crypto-assets that underlie crypto ETPs, for which the regulatory environment may still be evolving.
Custody and Security Arrangements. Custody and security arrangements are critical to address the holding, segregation, and granting of security over crypto-assets with regard to crypto ETPs. The legal framework around such arrangements remains an area of ongoing development and needs to be considered on a jurisdiction-by-jurisdiction basis. On April 30, 2025, for instance, France passed legislation that explicitly authorized the granting of pledges over digital assets under French law. Similarly, on July 14, 2025, U.S. federal banking regulators issued guidance that essentially allows banks to more readily provide crypto-asset safekeeping services.
Redemption Mechanisms. Crypto ETP programs may offer cash or physical redemption. Physical delivery of crypto-assets at redemption introduces operational and regulatory complexities, including procedures for transfer and compliance with applicable transfer restrictions.
Crypto-Specific Risks and Events. Prospectuses relating to crypto ETPs must also address crypto-specific risks and events such as "forks" (an event where a blockchain for a digital asset diverges into two different paths, after modification of the system protocols of the crypto-asset), "airdrops" (a free distribution of crypto-assets as a marketing strategy to promote visibility), or "staking" (the act of "locking up" one's crypto-assets with a blockchain validator with the goal of being rewarded with new tokens) and contain associated bespoke definitions and adjustment provisions.
Recent Regulatory Developments Concerning Crypto ETPs
In a July 1, 2025, statement, the U.S. Securities and Exchange Commission provided its views on the application of certain disclosure requirements under the federal securities laws to offerings and registrations of securities by issuers of crypto ETPs.
The United Kingdom's Financial Conduct Authority, on the other hand, recently announced in a press release dated August 1, 2025, that it was lifting its ban on retail access to crypto ETNs, beginning on October 8, 2025.
Noting growing interest for crypto ETNs, France's Autorité des marchés financiers ("AMF") launched a public consultation on proposed revisions to its current policy on crypto ETNs. As it stands, marketing of crypto ETNs in France is prohibited because crypto ETNs are classified as "very complex" financial products by the AMF. On June 5, 2025, the AMF approved a targeted doctrinal clarification, which would explicitly allow the marketing of some crypto ETNs meeting objective, legible criteria and providing a certain degree of security.
In Germany, crypto ETNs that track a cryptocurrency's price 1:1 (called "delta-one" products) have been offered since 2020. They are generally permitted, provided they meet regulatory standards, and are transparently structured. In contrast, Germany's Federal Financial Supervisory Authority ("BaFin") clarified in March 2024 that "pure" crypto ETFs tracking a single digital asset remain prohibited due to strict risk-diversification requirements applicable to funds. When structuring crypto ETNs, note should also be taken of the recent consultation published by BaFin in May 2025 on "turbo certificates" setting out additional requirements for certain more complex ETNs.
Three Key Takeaways
- Crypto ETPs provide a regulated, exchange-traded means for investors to gain exposure to crypto-assets, without direct ownership or management of those assets.
- Establishing a crypto ETP program requires careful consideration of, among others, choice of jurisdiction, the ever-increasing number of crypto-assets that may serve as underlying assets for crypto ETPs, custody and security arrangements, redemption mechanisms, and the specific risks and events that may affect crypto ETPs.
- While demand for crypto ETPs remains strong (crypto ETPs have attracted a total of $17.8 billion globally in the first half of 2025) and as the crypto ETP market continues to evolve, ongoing diligence and adaptation is required of issuers and market participants to navigate the complex and rapidly changing regulatory landscape and address the novel issues associated with crypto ETPs.
