New kid on the block no more! Cryptocurrency has officially been around for over a decade, and is moving ever closer to mainstream investment.
Clients have been asking advisers about factoring cryptocurrency into their portfolios for years, but practical options were limited – until now.
Platforms are beginning to show an interest in offering Cryptocurrency Exchange-Traded Notes (cETNs) which could make crypto easier to access.
What does this mean for advisers?
First, a quick overview of what crypto is, and how it works. Cryptocurrency is a digital asset that uses cryptography to secure transactions, control the creation of new units, and verify transfers on a decentralised ledger called a blockchain.
Unlike traditional currencies, most cryptocurrencies aren’t issued by central banks, but maintained through networks of computers.
Right now, it’s difficult to integrate Crypto into financial planning frameworks because it comes with considerable risks and practical limitations when trying to build a diversified portfolio.
Exchange Traded Notes (ETNs) offer a new type of investment structure that could make things much easier.
The investment structures for the initial wave of crypto currency offerings are in the form of Exchange Traded Notes (ETN).
ETNs are issued by regulated financial institutions and traded on traditional exchanges. They’re used to track indices synthetically via debt instruments where a counterparty will be obliged to pay a value to match the index’s return.
This means that instead of clients or asset managers holding cryptocurrency directly, they can build in crypto exposure to portfolios through a regulated security traded on a public exchange.
Typically, structures like these are used where the markets or assets tracked are niche or exotic and where buying the physical assets can be tricky.
This will enable a regulated structure to access returns associated with cryptocurrency without actually owning any of the cryptocurrency itself. This removes some of the barriers to access, not least having to work out what a crypto wallet is and how to keep your cryptocurrency safe.
Some platforms, primarily those who offer direct-to-client services at this stage, have expressed interest in hosting new ETNs once the regulatory ban is lifted.
We’re expecting to see more client-led demand from investors with an interest in cryptocurrency rather than from the established advice sector, but do ETNs have a wider place in modern financial advice? Cryptocurrencies are decentralised and not under the control of any central bank and could offer some diversification benefits through an asset that features little correlation to equities and bonds, the two main building blocks of most portfolios.
This means they could provide some level of volatility mitigation in the same way traditional alternative assets are used, like Gold and other precious metals in equity market downturns, albeit in relatively small proportions.
The investment structure could prove to be an issue when constructing a diversified portfolio, at least without the ability to deal in fractional shares.
As we see with certain ETFs, should their share price increase significantly (as is a very real possibility with a crypto-based ETN) it becomes difficult to incorporate, particularly on lower value portfolios.
For example, if a young investor wants to allocate 5% of their fledgling £50,000 pension pot (£2,500) and should the ETN’s share price rises to £2,000 per share, then the investor will either have to under or over-allocate.
For similar reasons, rebalancing could also be an issue where share prices are high in a relatively low-value portfolio.
There are also some complexities to consider regarding wrappers. Crypto ETNs will be available through your run-of-the-mill Stocks and Shares ISA alongside SIPPs and General Investment Accounts. However, from 6th April 2026, access will be limited to Innovative Finance ISAs. HMRC have also yet to confirm whether early investments in S&S ISAs before April next year, beating the rule coming into force, will have to be transferred to an IFISA.
In summary, while these styles of investments will no doubt be very popular with young investors using D2C platforms, I can’t see there being a significant demand in the advised space, at least initially.
There could still be a place for inclusion in a portfolio where clients are looking for diversifiers from traditional assets, in the same way EIS, VCT and BR portfolios can also be used to readily gain access to private market equity.
For more specific advice around ETNs and finding a place for crypto in the advised space, book a chat with me using the Say Hi link, or contact the team.
Ali is an investment specialist at Verve with IMC and ESG qualifications, a background in paraplanning and a talent for turning technical details into engaging webinars.
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