UK Crypto Derivatives Ban Seen Having Limited Effect on Small Market

Oct 12, 2020 at 04:00 UTC.The U.K. Financial Conduct Authority's decision to ban individual investors from speculating on bitcoin and other cryptocurrencies is likely to have a minimal impact, partly because the market is so small, according to analysts and industry executives who track the trading business.

Some U.K.-based brokerages that had offered the crypto derivative products to retail traders could see a drop-off in revenue, though big cryptocurrency exchanges including Kraken say the impact is likely to be minimal.

Professional investors weren't barred from trading cryptocurrency derivatives partly because they "Have greater understanding of the risks and greater capacity to absorb potential investment losses," according to an FCA report this month.

"Those still keen on trading crypto derivatives will just find ways to open accounts in unaffected regions," Don Guo, CEO of Broctagon Fintech Group, told CoinDesk in an email.

Few U.K.-based retail investors trade crypto derivative products directly, according to Sui Chung, CEO of CF Benchmarks, which provides price indexes to exchanges including Chicago-based CME Group.

Regulated brokers and exchanges that had offered crypto derivatives and exchange-traded notes to retail traders included the Kraken-owned Crypto Facilities, CMC Markets and IG Index.

"This has a very minimal impact on Crypto Facilities," a Crypto Facilities spokesperson told CoinDesk in an email.

As recently as May, crypto made up 2.7% of IG Group's total revenue this year, of which the U.K. market was only 1% to 1.5%, according to a research note by Vivek Raja and Paul McGinnis, analysts from Shore Capital, on Oct 6.

According to the note, crypto was within 18% of CMC Markets' total revenue as of March.

"Any step toward a better-defined regulatory framework serves to legitimize crypto as a mainstream investment for those institutions," said Dmitry Tokarev, CEO of London-based crypto custodian Copper, told CoinDesk via email.