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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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