Switzerland Approves First Bitcoin ETF Available to Retail Investors
Key Facts
The Swiss Financial Market Supervisory Authority has approved the first Swiss exchange-traded fund available to retail investors that invests directly in bitcoin, according to its statement. The approval allows direct investment in the cryptocurrency through a fund aimed at this investor group. The fund is governed by Swiss law, which classifies it under "other funds for alternative investments", according to the regulator. This classification designates investments carrying special risks within the legal framework the regulator used to approve it. The move thus combines retail access to the fund with a regulatory classification linked to the specific risks of alternative investment.
The regulator granted the fund an exemption from applicable risk diversification rules, citing the characteristics of bitcoin trading compared with other cryptocurrencies. It said bitcoin has a longer trading history, one of the two grounds underpinning the exemption. It also cited bitcoin's higher trading volume compared with other cryptocurrencies, according to the approval statement. At the same time, the regulator described investment in bitcoin as "highly risky", even through a fund it has approved. It specifically warned that the currency's volatility could lead to a substantial loss in the value of invested capital, maintaining its warning for investment through this regulated structure.
The investors targeted by the new approval differ from those the regulator permitted when it approved the first Swiss cryptoasset fund. On 29 September 2021, it announced approval of the fund whose name translates into Arabic as "Crypto Market Index Fund". Distribution of that fund was restricted to qualified investors, according to the regulator's announcement at the time. The distribution restriction concerned the category of investors to whom the fund could be marketed, with the announcement specifying qualified investors. The current approval concerns a fund available to retail investors that invests directly in bitcoin, marking the difference in access between the two Swiss decisions.
On custody, the regulator's guidance stipulates that direct cryptoasset investments held by Swiss collective investment schemes must generally be held with a Swiss custodian bank. This rule concerns cryptoassets in which the funds invest directly, according to its custody guidance. The regulator also stresses the need to protect clients' cryptoassets if the entity holding them becomes insolvent. The protection it emphasises requires those assets to be excluded from the custodian's insolvency estate. This condition puts clients' assets themselves at the centre of protection requirements, alongside the general rule requiring a Swiss bank to hold funds' direct investments.
Licensed financial institutions remain responsible when using service providers to hold cryptoassets, according to the Swiss regulator. It said in this regard that "responsibility remains with the licensed financial institutions". This includes custody arrangements in which an institution uses a service provider to perform the task. The regulator's guidance identifies cyberattacks among the operational risks associated with cryptoasset custody. It also lists inadequate protection of private keys among the risks facing custody operations, alongside licensed institutions' continuing responsibility for the arrangements they use.
The Swiss approval follows a U.S. decision on spot bitcoin exchange-traded products announced by the Securities and Exchange Commission on 10 January 2024. The U.S. decision authorised the listing and trading of shares in a number of those products, according to the U.S. regulator's announcement. In Switzerland, the financial regulator said other fund providers had submitted applications to establish bitcoin exchange-traded funds. It added that providers had also announced plans to apply, alongside applications already submitted. The industry's announced next steps thus include further applications for bitcoin exchange-traded products following approval of the Swiss fund available to retail investors.