UKs FCA crypto derivatives ban may push retail investors to riskier grounds

Thursday 14 January 2021, 10:44 PM AEST - 1 week ago

It has stated a variety of reasons for why the products cannot be reliably valued by retail consumers, such as financial crime, volatility and an inadequate understanding of crypto assets being the main ones. It was estimated that retail investors will save $53 million due to this ban. This is despite the FCA releasing a research stating that U.K. consumers have invested an estimated $2.6 million in crypto assets.

Although the main intention of this ban is to protect retail investors from the complexity of these products, the assumption that retail investors in the U.K. have an inadequate understanding of crypto assets might be incorrect. Jesse Spiro, global head of policy and regulatory affairs at Chainalysis — a blockchain analysis company — told Cointelegraph: Given the amount of available information and market intelligence that is now regularly produced on the cryptocurrency ecosystem, there are many retail investors that have a high degree of technical expertise and knowledge.

Derivatives growth driven by institutional investors

Last year saw crypto derivatives go through an enormous growth phase, where the open interest in Bitcoin options multiplied threefold in 100 days, reaching a yearly high of $6.8 billion on Dec. 31 before growing even further in early January amid a bull run, reaching an all-time high of $10.5 billion on Jan. 7. Even though this growth must include an increased interest from retail investors as well, there are several indicators pointing to the fact that it has mainly grown due to the involvement of institutional investors.

The Chicago Mercantile Exchange is one of the most important exchanges for institutional investors to give themselves exposure to digital assets through Bitcoin futures and options. The platform has reported that Bitcoins (BTC) average daily volume grew 114% year-on-year in 2020, which took the average daily open interest on CME up by 252%. The unique active accounts also rose to 6,700, showing an 84% growth year-on-year. The main indicator of institutional inte ...

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