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According To Watchdog, High-risk Crypto Should Be Banned

The City Watchdog; the Financial Conduct Authority has proposed to ban the sale of cryptocurrency derivatives to British investors, branding them “unsuitable”. This move is expected to save investors as much as £234m a year, or losses of £641,000 per day. Derivatives are high-risk investments that could potentially be used by investors to gamble on the movement in the price of underlying assets, which include stocks, currencies or commodities, without owning them.

According to the FCA cryptocurrencies, such as Bitcoin, were not able to be reliably valued, which could lead to “extreme volatility” in their price, meaning they did not make a suitable asset for this type of investment. It also said there was “inadequate understanding” of cryptocurrencies by investors. These features mean retail consumers might suffer harm from sudden and unexpected losses if they invest in these products,” the regulator said.

It also referenced the prevalence of market abuse and financial crime in the secondary market for cryptocurrencies, such as cyber theft, as another risk attached to the contracts. The potential for a ban was first referenced in the UK Cryptoasset Taskforce final report in October last year.

The FCA’s Christopher Woolard said: “We will act when we see poor products being sold to retail consumers. These are complex contracts built on top of complex assets.”

It is the next step in a wider crackdown on derivatives after the regulator announced new rules earlier this week restricting how “contracts for difference” (CFDs) are sold, marketed and distributed to retail investors which will apply from August.

CFDs are a type of tradeable contracts that allow traders to speculate on whether the asset’s price will rise or fall. Previously, they could multiply their investments with borrowed money, a technique known as “leveraging”, although this was banned this week, meaning investors are no longer able to lose more than is held in their trading account.

The regulator also announced a permanent ban on “binary options”, a similar type of speculative trade based on a win/lose bet of whether an asset’s value goes up or down within a given period of time earlier this year.

About Umme Haani

Vinayak Buckshee is a writer for Thecoinrepublic. she contributes a researched piece on cryptocurrencies and updates. Umme is an aspiring engineer who immensely enjoys writing and technical writing brings the best of both worlds under one roof for her.

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