UK authorities may ban crypto derivatives (Roubini approves)

04 Jul, 2019 | Updated: 04 Jul, 2019
by David Robb
Regulation
UK authorities may ban crypto derivatives (Roubini approves)

The UK's Financial Conduct Authority (FCA) is currently considering new legislation related to crypto. The FCA has proposed a rule change that will ban the sale of crypto derivatives.

The United Kingdom is one of the more popular regions for crypto trading, although financial authorities remain undecided on what regulatory measures need to be in place to protect investors. Derivative contracts appear to be a particular concern of the FCA, with a ban first proposed back in October of last year. 

As the crypto market matures, derivatives are becoming more popular as an option for many traders, particularly those from established financial institutions. The U.S. Commodity and Futures Trading Commission (CFTC) recently granted approval for both ErisX and LedgerX to offer physically-delivered crypto futures, which is seen as a big step forward for the space. The BTC futures market offered by CME Group has also seen a huge increase in demand recently.

According to the new proposal drawn up by the FCA's cryptoassets task force, the law regarding crypto derivatives should be changed, as "retail consumers can’t reliably assess the value and risks of derivatives...and exchange traded notes (ETNs) that reference certain cryptoassets. This is due to the: inherent nature of the underlying assets, which have no reliable basis for valuation prevalence of market abuse and financial crime...in the secondary market for cryptoassets, extreme volatility in cryptoasset prices movements, inadequate understanding by retail consumers of cryptoassets and the lack of a clear investment need for investment products referencing them."

Notorious crypto sceptic Nouriel Roubini is strongly in favour of this ban. He recently participated in a debate in Taipei with Arthur Hayes, the CEO of crypto trading platform BitMEX, which is the leading online provider of crypto derivatives. Roubini believes that derivatives, particularly the massively leveraged ones offered on BitMEX, are a "shady" and exploitative way for crypto businesses to make money from retail traders.

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