Regulators in the UK and US are clamping down on crypto trading. The sale and promotion of derivatives of bitcoin and other cryptocurrencies to amateur investors are being banned in the UK by the financial regulator, the Financial Conduct Authority (FCA). While over at the US side, they too are coming up with regulations over crypto trading. The US authorities have indicted leading crypto derivatives exchange BitMex for operating without being US-registered and allegedly failing to follow anti-money-laundering rules.
The FCA is introducing a ban on retail investors from trading crypto on January 6, but professional traders such as hedge funds and institutional traders are still allowed to trade them as it is about protecting people who might have been drawn to bitcoin thinking “it may be the currency of the future”, having “heard sensational news coverage about the rise and fall”. There is any number of splashy trading sites offering them quick and easy entry into this world, and YouTube influencers who enthusiastically encourage them to try complex trading.
Some 1.9 million people — around 4% of the adult population — own cryptocurrencies in the UK. Three-quarters have holdings worth less than £1,000 and would certainly qualify as retail investors. Yet retail investors are probably not the main users of derivatives. Trading site eToro said earlier this year that maybe only a tenth of their retail investor spend was on this segment. And with most of the UK contingent using non-UK based exchanges, it’s easy enough to avoid FCA jurisdiction. The FCA says the ban could reduce annual losses and fees to investors by between £19 million and £101 million. The ban also doesn’t make much difference at a worldwide level. The UK crypto market is small beer compared to global cryptocurrency holdings, which are worth US$335 billion (£258 billion). You would not, therefore, have expected the FCA ban to have a material detrimental impact on the price of bitcoin.
However, part of the FCA’s reasoning for the ban was that there was “no reliable basis” for valuing cryptocurrencies. It did not say there was no value in cryptocurrencies. That is a noticeable shift from what regulators might have said in the past and is a sign that bitcoin is becoming more widely accepted. Over at the US’s SEC side, they mentioned “We at the SEC are committed to promoting capital formation. The technology on which cryptocurrencies and ICOs are based may prove to be disruptive, transformative, and efficiency-enhancing. I am confident that developments in fintech will help facilitate capital formation and provide promising investment opportunities for institutional and Main Street investors alike.” So although with all the imposed bans and indiction of exchanges, it is still worthwhile to note that big regulations around the world are actually slowly opening up, and there is still a future for cryptocurrencies.