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FCA Bans Crypto Derivatives Starting with January 6th, 2021

Bitcoin - BTCUSD
Bitcoin - BTCUSD

The entire crypto market’s volatility depends on how the Bitcoin price moves. At any given point, during the trading week, if the Bitcoin price consolidates, the rest of the market follows.

Therefore, whenever something important happens on the Bitcoin’s front, the entry crypto market listens. Bitcoin price hovered above the 10,000 looking for direction recently, even decoupling from the other risk-on assets, like the stock market in the United States.

Is the FCA decision enough to create some volatility on the crypto market?

UK’s FCA Bans Crypto CFDs

One of the most important financial regulators, the FCA (Financial Conduct Authority) in the United Kingdom, just announced that it is banning crypto-derivatives starting with 2021. More precisely, the FCA bans retail traders from trading CFDs (Contracts for Difference), among other crypto derivatives.

The move is likely to shift speculators to other exchanges and to create some volatility on the crypto market too. The reason for the volatility is that few traders understand that trading a CFD is not owning the actual underlying asset. As such, the news will likely create some pressure on the price of some crypto assets, Bitcoin included.

One of the reasons the FCA cited for banning derivatives CFDs or ETNs (Exchange Trading Notes) is the lack of understanding by the retail consumer of how the underlying assets of these products work. Also, FCA believes that there is no legitimate investment need for such products from the retail community as the retail trader lacks the understanding of crypto-assets.

According to the FCA, the decision is about to save over fifty million pounds for the retail consumer. Once again, the FCA puts customer protection above all else.

Moving forward, it will be interesting to see if the FCA’s decision will have some follow-through on other jurisdictions. If more regulators push into the same direction, speculating on the Bitcoin price may become available only on crypto-exchanges. But then again, most of them lack regulation, so the risk remains on the retail trader’s side.

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