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UK Crypto Derivatives Ban Seen Having Limited Effect on Small Market

UK Crypto Derivatives Ban Seen Having Limited Effect on Small Market

(Piotr Swat/Shutterstock)

The U.K. Financial Conduct Authority’s decision to ban individual investors from speculating on bitcoin and other cryptocurrencies is likely to have a minimal impact, partly because the market is so small, according to analysts and industry executives who track the trading business.

Some U.K.-based brokerages that had offered the crypto derivative products to retail traders could see a drop-off in revenue, though big cryptocurrency exchanges including Kraken say the impact is likely to be minimal. While U.K. individuals can still trade the actual cryptocurrencies, there may be some traders who will seek to skirt the rules by trading on offshore exchanges.

The ban is set to take effect in January. Professional investors weren’t barred from trading cryptocurrency derivatives partly because they “have greater understanding of the risks and greater capacity to absorb potential investment losses,” according to an FCA report this month.

Related: Crypto Long & Short: A UK Ban on Crypto Derivatives Will Hurt, Not Protect Investors

“Those still keen on trading crypto derivatives will just find ways to open accounts in unaffected regions,” Don Guo, CEO of Broctagon Fintech Group, told CoinDesk in an email. “There is a stark risk that retail traders will simply trade on unregulated exchanges, which in fact puts them at more risk.”

Few U.K.-based retail investors trade crypto derivative products directly, according to Sui Chung, CEO of CF Benchmarks, which provides price indexes to exchanges including Chicago-based CME Group.

Instead, they normally go through so-called contract for difference (CFD) providers, Chung said. 

Regulated brokers and exchanges that had offered crypto derivatives and exchange-traded notes (ETNs) to retail traders included the Kraken-owned Crypto Facilities, CMC Markets and IG Index.

Related: CME Sounding Out Crypto Traders to Gauge Market Demand for Ether Futures, Options

“This has a very minimal impact on Crypto Facilities,” a Crypto

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CME Sounding Out Crypto Traders to Gauge Market Demand for Ether Futures, Options

CME Sounding Out Crypto Traders to Gauge Market Demand for Ether Futures, Options

CME headquarters, Chicago (Daniel J. Macy/Shutterstock)

The Chicago Mercantile Exchange (CME), the largest U.S. regulated market for bitcoin futures, has been sounding out cryptocurrency traders to gauge their interest in a listing of futures and options for the Ethereum blockchain’s native currency.

  • Darius Sit, founder and chief information officer at Singapore-based QCP Capital, told CoinDesk in an interview that CME had asked his firm whether it might be interested in trading ether (ETH) derivatives on the exchange.
  • Ether is the second-largest cryptocurrency by market capitalization, at $41 billion.
  • A CME Group spokesperson declined to comment when reached by CoinDesk, adding, “We don’t comment on whether or not we’re developing any products.”
  • The CME has become one of the leading venues for institutional investors to bet on bitcoin, following the launch of a futures contract in late 2017 and options earlier this year.
  • Partly due to the explosive development of decentralized finance (DeFi) this year, there has been rising demand from traders for ether derivatives that can be used to make leveraged bets on price moves or simply to hedge.
  • For now, the biggest venues for trading ether futures are on non-U.S. exchanges led by OKEx, Huobi and Binance, according to the data firm Skew.
  • CME previously launched an Ether-Dollar Reference Rate in May 2018 along with an Ether-Dollar Real Time Index, but as recently as June the exchange told CoinDesk it had “no plans to introduce additional cryptocurrency products.”
  • Vishal Shah, founder of bitcoin crypto derivatives exchange Alpha5, told CoinDesk in a Telegram message that he sees CME ether derivatives as “overdue.”
  • The chatter around CME’s rumored ether products launch also comes after U.S. regulatory authorities recently brought a series of civil and criminal charges against popular derivative exchange BitMEX.

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