{"id":114835,"date":"2019-10-04T09:02:11","date_gmt":"2019-10-04T09:02:11","guid":{"rendered":"https:\/\/cryptoslate.com\/?p=114835"},"modified":"2021-08-23T21:09:20","modified_gmt":"2021-08-23T20:09:20","slug":"why-uk-thinking-banning-crypto-derivatives","status":"publish","type":"post","link":"https:\/\/cryptoslate.com\/why-uk-thinking-banning-crypto-derivatives\/","title":{"rendered":"Why is the UK thinking of banning crypto derivatives?"},"content":{"rendered":"

Britain\u2019s foremost financial watchdog, the Financial Conduct Authority, is contemplating a blanket-ban on cryptocurrency derivatives for retail traders as early as 2020, The Economist reported<\/a>.<\/p>\n

The meeting comes on the heels of a statement<\/a> released in early July by the FCA proposing a ban on crypto derivatives\u2014high-risk assets where \u201cretail consumers might suffer harm from sudden and unexpected losses,\u201d the regulatory body said.<\/p>\n

Thursday, the FCA held a consultation on the matter, purportedly in response to recent market \u201ctantrums,\u201d said the Economist, such as September 24th\u2019s liquidation of $643 million long contracts<\/a> on Bitcoin derivatives giant BitMEX. A final outcome is expected in early 2020.<\/p>\n

The Economist: crypto not fit for currency or derivatives<\/h2>\n

\u201cIt would take an earthquake for the FCA not to press ahead\u201d with the ban, wrote the Economist, consistent with the publication\u2019s classically liberal economic outlook. Justifying its assertion, the paper wrote:<\/p>\n

\u201cBut crypto-monies are not legally recognised currencies. They do not reliably store value, rarely serve as a unit of account and are not widely accepted. Peddlers of crypto-derivatives, the FCA says, cannot claim their wares are needed for hedging purposes.\u201d<\/p><\/blockquote>\n

Clearly misunderstanding the nature of derivatives, the London-based publication seemed to be well off the mark in its reasoning for calling the prospective ban a done deal. Derivatives need not reliably store value, serve as a unit of account, or be widely accepted. Wheat, one of the longest-traded derivatives in the history of modern markets, would not meet any of The Economist\u2019s qualifications.<\/p>\n

Simply, derivatives are securities derived from underlying assets including stocks, bonds, commodities, interest rates, and currencies (including cryptocurrency). Their use in hedging risk, as The Economist pointed out, may be one of the core functions of the asset-class. Yet, the trading of derivatives for speculation, by institutional and retail traders, is as common a purpose.<\/p>\n

Further, the FCA\u2019s claim, as purported by The Economist, that \u201cpeddlers of crypto-derivatives\u201d cannot claim their wares is now inaccurate due to the recently launched Bakkt<\/a> futures contract\u2014which expressly mandates the physical settlement of Bitcoin contracts. The contracts are a \u201cgood hedge\u201d in the eyes of the U.S. Securities and Exchange Commission, according<\/a> to Genesis Capital CEO Michael Moro.<\/p>\n

FCA says crypto too volatile, incomprehensible, cannot be valued<\/h2>\n

While The Economist may have been a little laissez-faire in its assertions, the FCA\u2019s earlier statement did provide the following reasons for contemplating the ban:<\/p>\n