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France’s Crypto Profile on the Rise as Early Mover Asset Manager Eyes More Funds

When it comes to blockchain innovation, the regulatory wheels might turn slowly in the United States, but that’s not the case for the rest of the world, particularly France. The Northwestern European nation is now joining the ranks among the early movers. Paris-based alternative asset manager Melanion Capital received the regulatory green light to move forward with an EU-regulated bitcoin-linked index fund.

The exchange-traded fund, dubbed the Melanion BTC Equities Universe UCITS ETF, will track the performance of the Melanion Bitcoin Exposure Index, which Melanion previously launched in partnership with Germany-based index infrastructure company BITA. The BTC equities ETF is said to be the first of its kind in Europe, and it is quite the coup for Melanion Capital.

Cyril Sabbagh, head of Melanion Capital’s ETF business, told Sharemoney,

“France is clearly leading the way in finance post-Brexit and in blockchain, as it once again proved its open-mindedness on cutting-edge subjects and its desire to be a pioneer vis-à-vis other countries in Europe but also in the world.”

The U.S. SEC, for example, has been sticking its head in the sand on a bitcoin ETF ever since the maiden application was filed some seven years ago. In France, meanwhile, the regulatory message is to come on in, the water is fine. Since announcing its bitcoin equities ETF, Melanion has received inquiries across the investor spectrum, including institutions, private bankers, family offices, and retail investors, Sabbagh said.

Clearing Regulatory Hurdles

Melanion has spent nearly two years working on the bitcoin ETF. Sabbagh joined the firm at year-end 2019 with what he described as a mission to launch the ETF and build out the digital assets business. Getting the regulatory thumbs-up was no easy feat.

“We worked directly with regulators from different countries. The approval process took more time than usual for an equity ETF, as the topic had political and reputational implications. We had to revise our copy several times before getting the final approval,” explained Sabbagh.

There are a couple of unique features that set the Melanion bitcoin equities ETF apart, chief among which is its compliance with the UCITS regulatory standard that is already resonating with investors.

“Our idea was to create a fund in a UCITS format where people could have an exposure to the bitcoin thematic because such a fund didn’t exist,” explained Sabbagh. “Today having direct exposure to bitcoin is neither easy nor secure. With our fund and the UCITS label, you have a safe exposure to the theme.”

For example, with the UCITS label, investors know they are getting the following features:

  • A framed list of eligible assets
  • Diversification rules
  • Sound risk management
  • Precise investment limits
  • Transparency rules
  • Use of an independent regulated custodian bank.

Keystone Law attorney Winston Penhall told the Financial Times that this is the first time he’s observed a cryptocurrency fund operate “under the UCITS umbrella.”

In addition, the ETF tracks the Melanion Bitcoin Exposure Index, which is beta weighted and “bridges that gap between equities and bitcoin,” according to the announcement. Sabbagh noted that this feature is “unseen in the ETF world,” telling us,

“This unique composition extracts from equities the bitcoin risk premium, allowing us to give our investors the maximum exposure to the theme, while at the same time meeting the UCITS regulatory constraints, which are known for being very constringent.”

So for example, instead of merely following the volatile price of bitcoin, which has been known to exhibit wild market swings, the ETF will mimic “securities with the highest historical sensitivity to bitcoin,” according to the press release. Investors are gaining exposure to bitcoin in a diversified manner that is up to regulatory snuff.

Melanion’s bitcoin ETF will track a basket of close to three-dozen stocks that have exposure to market themes such as blockchain technology and cryptocurrency mining, the result of which will be a fund boasting a 90% correlation to the bitcoin price, according to the firm.

The ETF will target companies that generate revenue from areas such as cryptocurrency asset management and trading, crypto banking, crypto mining/related hardware, or blockchain technology. The fund will also focus on those firms that have taken the bold step to hold cryptocurrencies such as bitcoin on their balance sheet, “either as cash and receivables or as investment assets,” explained Sabbagh, pointing to Marathon Digital Holdings, Riot Blockchain or MicroStrategy as examples. He added:

“Like all new assets, bitcoin is still in price discovery mode, hence companies involved in this space can experience strong volatility regimes. We recommend investors to be cautious and allocate a small part of their portfolio, in order to diversify their market exposure.”

The Melanion BTC Equities Universe UCITS ETF will trade under the symbol “MBCEXI Index” on Bloomberg and can also be found on BITA’s website:

France and Crypto

France’s securities watchdog, the ​​Autorite des Marches Financiers, has sought to place the cryptocurrency and blockchain industry under the oversight of the Paris-based European Securities and Market Authority (ESMA). The idea is to create a uniform regulatory framework across the euro area and prevent “regulatory arbitrage” rather than having a patchwork approach. In the case of fintech, a lack of uniformity has proven to be a costly and cumbersome way for service providers to operate in the region.

ESMA already operates with investor protection in mind. Giving it the job of governing cryptocurrencies across the eurozone could bring a sense of cohesion to the blockchain industry in Europe while jurisdictions such as the United States take one step forward and two steps back. With the launch of Melanion Capital’s regulated bitcoin equities ETF, France is already out front.

For its part, Melanion is in the process of developing further ETF projects in the cryptocurrency space, but Sabbagh is keeping the details on those products close to the vest. The firm is also engaged in discussions with U.S. counterparties and is “willing to submit an ETF with a similar structuring to the SEC,” he said.


Gerelyn Terzo of Sharemoney

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