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Just three years ago, spot Bitcoin ETFs were hailed as crypto’s final gateway into mainstream finance. And for a brief moment, they looked like they would truly revolutionise investing. After a flurry of approvals and billions of institutional dollars flowing in, many on Wall Street assumed the ETF era was upon us.
ETFs gave institutions a straightforward method of gaining exposure to Bitcoin (BTC) and Ethereum (ETH) without grappling with private keys and custody complications. But they have a fundamental limitation in that they typically track price alone. When crypto’s famously volatile market moves sideways, ETF returns can stall as well. That makes spot ETFs appear increasingly like blunt instruments in a market that demands innovation and sophistication.
Rising expectations in a 24/7 market
The reality is that as institutional adoption grows, so too do expectations. In capital markets, an investment that cannot generate returns beyond price appreciation has an inherent flaw. That flaw is magnified in the fast-changing 24/7 world of crypto. Investors who were once content with passive exposure are demanding more. In traditional markets, exchange-traded products can be used to access dividends, interest-bearing instruments, or structured investment vehicles. Why should crypto investment be limited to simple price speculation?
Exchange-traded notes answer this demand by offering structured exposure to multiple crypto assets, including staking-based tokens, DeFi portfolios, and multi-asset investment baskets. These products are flourishing in Europe, where offerings have rapidly expanded beyond Bitcoin and Ethereum to include products tracking staking rewards, diversified crypto portfolios, and structured derivatives.
The role of regulation: MiCA changes the game
Momentum in Europe isn’t accidental—the continent’s UCITS regulation strongly limits ETF activities, creating a natural opening for ETCs and ETNs to lead the way as more adaptable investment vehicles—a factor being accelerated by the European Union’s Markets in Crypto-Assets Regulation (MiCA), which came into full force at the end of last year. MiCA provides a unified legal framework for crypto assets across EU member states, mandating clearer standards for the issuance, operation, and marketing of digital assets.
Crucially, MiCA addresses the primary concern about ETNs: credit risk. As debt securities, ETNs traditionally hinged on the issuer’s creditworthiness. Under MiCA, however, issuers must satisfy higher capital requirements and demonstrate operational transparency, reassuring protections for institutional money. This evolution reduces counterparty risk, mirroring regulatory frameworks already familiar to bond investors.
Combined with the latest ETP performance data, the conclusion is difficult to miss: a growing number of institutional players appear comfortable embracing yield-bearing ETN structures in a well-regulated environment.
A tale of two continents
But while Europe strides ahead with MiCA, the United States remains hesitant. The SEC’s cautious approach has limited the availability of more versatile crypto investment products like ETNs. This regulatory lag puts U.S. investors at a disadvantage, restricting their ability to fully capitalize on the opportunities within the crypto market.
Such divergence could be the beginning of a structural shift, where investors are no longer solely seeking exposure to Bitcoin’s next peak. These investors want vehicles that capture staking rewards or earn fees from decentralised finance protocols. A static ETF simply cannot offer these perks, giving a strong advantage to ETNs with their built-in potential for extra returns.
That does not mean ETFs will vanish. They retain considerable brand power, particularly in North America, where name recognition and a simpler regulatory environment have made them top-of-mind for conservative players. Yet as conventional markets continue to hunger for yield, institutional capital is gradually shifting toward more dynamic structures—momentum which only stands to accelerate if the Trump regime chooses to ease restrictions or if Europe’s support for ETNs grows more comprehensive under MiCA.
Criticism persists, but so does demand
Critics who remain tethered to the safety of ETFs argue that staking tokens and newer DeFi assets are too risky or illiquid. They point to credit risk and smart contract exploits in decentralized platforms. Such skepticism can be healthy, but it fails to account for the real appetite among yield-seeking investors. The accelerating flows into ETNs suggest many are prepared to navigate these complexities in pursuit of stable returns, especially if the alternative is sitting idle through cyclical crypto doldrums.
To an extent, ETFs were instrumental in legitimizing crypto among pension funds and large asset managers. Yet that very success opened the door to other structures that could build on rather than track crypto’s underlying innovation. In doing so, ETNs are carving out a unique space—one that captures the dynamism of digital assets more effectively than the plain-vanilla ETF.
In essence, the crypto market’s next growth phase hinges on products that deliver more than blind bets on price. Institutions want diversification and yield. Regulators want transparency. ETNs, though not without pitfalls, appear to strike a better balance between these demands. As Europe forges ahead with regulatory clarity and as yield-hungry capital circles the globe, ETNs look set to eclipse ETFs as the default instrument for serious crypto allocation.
For those content with a passive approach, ETFs may continue to suffice. But for the world’s largest funds, complacency is seldom a strategy. With the promise of income in both bull and bear markets, ETNs beckon as the savvier bet to properly harness the potential of crypto. If the near future of digital finance is about innovative ways to generate returns, ETNs are no mere sideshow.
And they could yet be the main event.
