The UK’s Financial Conduct Authority (FCA) is reportedly close to deciding whether to ban derivatives trading of Bitcoin and cryptocurrencies.
A proposal is already on the table and the regulator is expected to make its decision early next year, reports The Economist.
The FCA says it has an obligation to protect retail investors and estimates people in the UK lost $492 million using crypto derivatives during the crypto crash in early 2018.
Although crypto assets are an extremely risky investment, Jacqui Hatfield of the international law firm Orrick says there’s no legitimate reason to single out the derivatives trading of digital assets.
“This is a knee-jerk reaction. Crypto-derivatives are just as risky as other derivatives.”
Meltem Demirors, chief strategy officer of London-based digital asset manager CoinShares, notes how such a ban could impact the crypto ecosystem at large.
“Regardless of whether you care about investor access to crypto derivatives, this ban is bad for Bitcoin and the ecosystem. The contagion risk is clearly very real that other regulators may copy the FCA’s approach.”
In a letter to investors, she adds,
“We believe that the FCA has not provided sufficient evidence to justify the proposed ban. Through its consultation, the regulator makes little attempt to genuinely evidence its claims and instead ‘cherry picks’ datasets in order to illustrate its perception of cryptoassets and the perceived harm the FCA believes these products cause.”
Bitcoin’s recent big drop on September 24th from $9,734 to $8,404 coincided with a cascading liquidation of longs on crypto derivatives exchanges.
Researchers at CryptoQuant attempted to understand Bitcoin’s price volatility on September 25th with on-chain data.
“After the recent drop in price, using our on-chain data, the research team at CryptoQuant looked for a potential cause. Although we didn’t find a cause for the most recent price movement, we found a correlation between the BitMEX withdrawal system and the timing of big price movements.”
According to the crypto data tracker Skew, more than $700 million in longs were liquidated on BitMEX alone.