Europe’s economies are on the uptick, with GDP growth in the EU projected to rise to 1.6% and 2% in the UK in 2025. Inflation is also falling across Europe from its recent highs and hovering around 2.5%.
With Europe returning to financial health, the region has the potential to be still considered vulnerable to several exogenous shocks including a further deterioration of the War in Ukraine and other geopolitical tensions. As a result of these challenges, financial players in Europe are re-calibrating their exposures to traditional asset classes (i.e. equities, bonds, etc.) and are instead putting money to work in digital assets, including cryptocurrencies.
After a volatile 2022/3 punctuated by the rise and fall of several high-profile stablecoins, the collapse of Three Arrows Capital hedge fund and the subsequent demise of FTX, cryptocurrencies are once again enjoying something of a revival.
According to Chainanalysis data, Western Europe accounted for 17.6% of all global cryptocurrency transaction volumes between July 2022 and June 2023, and Eastern Europe 8.9%. The UK was ranked third in the world regarding cryptocurrency transaction volumes, putting it only behind the US and India, while Germany was in ninth place.
Although retail participation in Europe is solid, the majority of cryptocurrency transactions are dominated by institutions (i.e. organisations with more than $1 million in assets).
European finance and enterprise firms are bullish on digital assets, with 63% saying their confidence in digital assets has either ‘somewhat’ or ‘significantly’ increased over the last six months.
These firms cited the following as the biggest accelerators behind the growth of digital assets:
- their increased adoption by institutions (36%)
- the decision by governments to develop central bank digital currencies (33%)
- their intrinsic value as an investment (31%)
While there is a healthy demand for cryptocurrency-based fund products in the EU, they are harder for purchasers to access than in other markets, even including the US. Whereas the US Securities and Exchange Commission (SEC) approved this year for shares in spot Bitcoin Exchange Traded Funds (ETFs) to be listed and traded, these products cannot be sold in the EU due to UCITS rules, which ban ETFs from investing in just one single asset.
However, European players can gain exposure to cryptocurrencies indirectly through exchange-traded notes (ETNs) or exchange-traded products (ETPs). For instance, crypto ETPs are widely traded on the SIX Swiss Exchange in Zurich, while the London Stock Exchange recently went live with nine ETNs consisting of Bitcoin and Ethereum underlying.
Even so, assets managed by crypto ETPs in Europe are dwarfed by those of US spot Bitcoin ETFs. According to the Financial Times, European crypto ETPs manage just $6.4 billion. At the same time, CoinGlass data shows that $63 billion has been invested into US spot Bitcoin ETFs this year alone, of which one-third, or $21 billion, of those flows, went into BlackRock’s recently launched iShares Bitcoin Trust.
Nonetheless, as interest in Europe for cryptocurrencies and digital asset fund products gradually increases, the appetite for crypto custody solutions will also likely grow.
Ripple explored these trends in our ‘2024 New Value’ survey, in which 400 finance leaders at financial institutions and enterprises across Europe participated. On the Financial Institution side, senior and executive leaders from retail, commercial, and custodian banks; digital banks/fintechs; money transmitters and payment providers; PSPs; and investment banks and brokerages participated.
On the enterprise side, leaders hold roles in payments, treasury, cash management, trading, settlement, or custody of digital assets.
Download the full report for observations and insights about the next wave of digital asset custody innovation, including momentum gains around blockchain and crypto technology.