The Financial Conduct Authority (FCA), the United Kingdom financial regulator, has banned the sale and promotion of bitcoin derivatives and other cryptos to newbies in the crypto space.
This move is coming at a critical time when the market is experiencing a tough time following the news of the arrest of BitMEX executives by the U.S. regulators. The executives of the crypto derivatives firm were indicted for operating without registration and disobeying anti-money laundering rules.
Given this, the University of Cambridge has reported that most crypto investment firms have been operating without a license. This information means that major crypto outfits might be indicted in the coming weeks.
The New FCA ban to begin from January 6
This information will be bad news on the part of crypto investments, going by what customers of BitMEX are currently going through. According to the FCA, it is preventing retail investors from purchasing crypto futures and options around the United Kingdom.
Investors have always used their stake in futures and options to hedge their bets on underlying assets. The FCA said the ban would take effect starting from January 6 because beginners in the crypto space were open to run into massive and unexpected losses.
Furthermore, the regulatory body mentioned that most amateur investors do not understand how the market works before entering it.
The FCA also mentioned that the market is full of abuse and financial crimes since crypto is volatile and is very hard to value. Stressing on the announcement, the FCA clarified that the ban was not extended to professional traders.
Institutional investors and hedge funds are also exempted from the law as they are involved in riskier products in the financial markets. “It is about protecting people who might have been drawn to bitcoin thinking, “it may be the currency of the future,” having heard sensational news coverage about the rise and fall,” the FCA said.
FCA ban on derivatives might stabilize the price of bitcoin
Another reason why the regulatory body passed the law was that several trading sites offer new investors quick ways to make profits. In the United Kingdom, 4% (1.9 million) of the adult population own digital assets.
Three-quarters of the population hold nothing less than $1,305 worth of digital assets, making them retail investors. Even though the total population that trade in crypto derivatives is still unknown, a report in 2019 claims that one-fifth of the total market is involved in it.
One truth about Bitcoin’s price is that it has been volatile, which has made many experts repeatedly state that it is not qualified to be a store of value. The experts might argue that banning derivatives trading will limit the volatility of the asset.
Another major blow to the crypto industry is that financial regulators in other cryptos savvy countries might follow the FCA’s footsteps. If the United States regulators eventually uncover and indict more firms like BitMEX, the situation will be greatly aggravated.