Financial Notes

MITCH’S NOTE 👋

The biggest change to Stocks & Shares ISA’s in 25 years took place on the 8th October, with the FCA’s approval of Crypto Exchange Traded Notes which can now be held in Stocks & Shares ISA’s, and Self Invested Personal Pensions (SIPP’s). There were however some delays, as it took some brokers a little bit of time to activate the data feeds on their platforms, with many only going live earlier this week.

Whilst this may be a welcomed move for 7 million cryptocurrency investors in the UK (FCA, 2024) looking to save on capital gains taxes, there is a catch, and access through a Stocks ISA may be short lived… read on for further details.

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WHAT ARE CRYPTO ETN’s?

A Crypto ETN (Exchange Traded Note) in principle works similar to that of an ETF, in that it tracks the price of an underlying asset, but in the case of cETN’s, its tracking cryptocurrencies like Bitcoin and Ethereum.

IS YOUR MONEY SAFE IN AN ETN?

Let's take this from two angles.

… sounds similar, but they’re two very different things.

First let's talk about the risks of the underlying asset, in that we know that cryptocurrency is as a high risk investment. It’s not just my opinion, the regulators have classified it as a RMMI (Restricted Mass Market Investment), meaning investors have to complete a short assessment to confirm they will hold no more than 10% of their net assets in high risk investments, and that they can demonstrate an understanding of the risks involved.

Your broker will ask you to complete one of these tests prior to allowing you to invest in a Crypto ETN.

Whilst this is how the regulators classify the risk of this type of asset, there are a broad spectrum of crypto assets available, some arguably higher risk than others. You have “meme coins”, which i’m not even going to go into, i’ll let you draw your own conclusions, the name gives it away though, and then you have the “blue chip” cryptocurrencies like Bitcoin and Ethereum.

Now when I say blue chip, I’m not implying that these are safe investments, they’re just more established and mature. Bitcoin for example has a market cap of $2.2T, which is a bigger market cap than Tesla, Meta and Berkshire Hathaway, hence the “blue chip” status i’ve labelled it with.

But what level of risk does Bitcoin actually contribute to a portfolio? Well there was an interesting piece of research done by BlackRock, which showed how much risk Bitcoin contributed to a 60/40 portfolio between 2012 and 2024, depending on your portfolio exposure to it.

BlackRock concluded that as the allocation to Bitcoin increases, overall portfolio risk rises sharply, particularly once the location exceeds a 2% weighting. The increase in portfolio risk is therefore disproportionate to the increase in Bitcoin allocation.

But risk isn’t necessarily a bad thing, providing it’s well managed and in line with an investors risk appetite, as suggested by the BlackRock research.

What about the risk of the investment?

Well ETN’s whilst similar to ETF’s, they do work differently… kind of! An ETN is a debt instrument, issued by the fund provider to track the performance of an asset. Traditionally, an ETN hasn’t held the underlying asset, and instead it is a promise to pay a return based on the index. However, the rules are slightly different for Crypto ETN’s, which is a good thing for investors! Let me outline a couple of the important bits of criteria from the London Stock Exchange cETN factsheet:

These 3 points provide additional layers of security and protection for the retail investor, and are requirement to be followed by cETN providers. You can read the full fact sheet here if you’re bored one evening!

THERE IS ONE CATCH…

Ok, this bit might seem a little bit silly, it seems silly to me anyway, but these Crypto ETN’s as the rules stand are only available in a Stocks & Shares ISA for THIS TAX YEAR ONLY. Yes, you have read that right. After April 6th 2026, the current proposal is that Crypto ETN’s will only be available through the Innovative Finance ISA. This is the official line in the policy statement on gov.uk:

I personally don’t see the point in having them available in a Stocks ISA for the next 5 and a half months, only to make them unavailable again. That’s the unnecessary added complexity to financial products that I personally don’t like to see, especially when the underlying asset is arguably complex and largely misunderstood by the masses as it is!

I don’t know about you guys, but the IFISA is an ISA account that i’ve never used, and i’m not overly familiar with, however I did receive an email last week to ask me to touch on this type of ISA, which I can understand as they don’t get much airtime! Although I guess they may become more popular come the new tax year…

Do reply to this email to let me know your thoughts on Crypto ETN’s, and whether you think moving them to the IFISA is sensible or not!

Cryptocurrency is a high risk and highly volatile investment. When investing your capital is at risk and the value of your investments can go up as well as down. Always do your own research.

A SMALL FAVOUR ❤️

I’ve been nominated for the Financial Influencer of the Year Award under the Investment category, with the winner announced on this Thursday. If you have a spare moment, it would be fantastic if you could cast your vote using the link below. You can vote across many categories, or just the Investment category if you want to show your support by clicking here.

Thanks so much for any votes, it really does mean a lot!

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