According to a recent article published by The Economist, regulators around the globe could soon start stepping up their effort when it comes to outlawing cryptocurrency derivatives. In such a way, they want to protect retail investors from the mercurial market.
The Financial Conduct Authority (FCA) proposed a ban on cryptocurrency futures, options and other products that allow investors to bet on the prices of the volatile asset class back in July. However, it needed more time to consult with financial regulators.
The British watchdog is expected to voice its verdict at the beginning of 2020, but the Economist states that the FCA is unlikely to back down from its plan to crack down on crypto derivatives.
The main reason why regulators are up in arms about these exotic investment vehicles is because of uninitiated retail investors who can get easily burned while chasing gargantuan gains.
Playing with fire
British investors alone lost a whopping $492 mln on crypto derivatives throughout the 2018 crypto winter. It has been estimated that this number could be dwindled to about $200 mln if prohibitive measures are implemented.
However, there is no guarantee that his ban could be effective. Jacqui Hatfield, who spearheads the fintech and technology practice for London-based law firm Orrick, is skeptical of the effort, calling it “a knee-jerk reaction.”
Crypto-derivatives are just as risky as other derivatives.”
After all, risk-loving traders can always turn to unregulated trading where Seychelles-based BitMEX rules the roost.