UK FCA’s ban on Bitcoin Derivatives can Spell Trouble for Some Service Providers

CryptoMode Bitcoin Derivatives Spot Trading

It appears there is a lot of confusion regarding a recent FCA announcement. In the UK, the FCA has officially banned cryptocurrency derivatives. This does not mean Bitcoin itself has suddenly become illegal in the country. 

The FCA Bans Derivatives Trading

Not too many people will be surprised to see governments crack down on derivatives. While they have existed for some time now, the trading vehicle remains controversial. This concern grows when cryptocurrencies are involved. Despite their popularity, the UK’s FCA has decided to ban all crypto derivatives trading effectively as of January 6, 2021.

It is evident that both derivatives and ETNs pertaining to cryptocurrency are problematic. In the UK, this means users can no longer trade crypto CFDs, options, and futures. In a way, this should yield far less market volatility, albeit the UK is not the biggest market for Bticoin whatsoever. It can set a major precedent for the rest of the world, however. 

Until the ban goes into effect, the trading of these vehicles remains permitted. However, service providers may stop providing these services before the new ruling goes into effect. According to the FCA, this decision is made to help reduce trading losses. A protective measure, of sorts, although not everyone will see it that way. 

It is important to note this does affect the regular trading of Bitcoin and other cryptocurrencies. Exchanges, OTC desks, and decentralized platforms will continue to operate as normal. Following the recent BitMex investigation, the crypto derivatives market, on the other hand, has received another major blow in quick succession.

More Legitimacy for Bitcoin in the UK?

One could argue this move will have positive effects on the Bitcoin industry in the United Kingdom. More specifically, the FCA allows crypto companies to register with them to form a regulatory framework. There is no ill-will toward Bitcoin and crypto assets by any means. Wrapping these currencies into derivatives, however, is something the organization is concerned about.  

Several UK-based companies will feel the impact of this new ruling. The likes of eToro, and many others provide a CFD to bitcoin investors, rather than the actual asset. As such, they will need to change their business model altogether,  or drop bitcoin support completely. It will be interesting to see which outcome they favor.

One company not affected by this change is Revolut. As a company spokesperson explains:

“Revolut does not provide derivatives or exchange-traded notes (ETNs) to our customers. Instead, we buy crypto on customers’ behalf and they have full ownership over the crypto they buy. The ban, which doesn’t come into effect until 6 January 2021, does not affect Revolut or our customers’ cryptocurrency.”

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