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UK’s FCA crypto derivatives ban may push retail investors to riskier grounds

U.K.’s FCA banning retail investors from engaging with crypto derivatives takes away risk hedging opportunities.

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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 Bitcoin’s (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 interest, the number of large open interest holders, grew to a record of 110 in December as evident from the chart below.

The United Kingdom’s Financial Conduct Authority banned the sale of crypto derivatives and exchange-traded notes to retail investors effective Jan. 9, 2021. The FCA’s main underlying reason for this is the products are “ill-suited for retail consumers due to the harm they pose.” 

Jay Hao, CEO of crypto and derivatives exchange OKEx, told Cointelegraph that “crypto assets are indeed volatile as the FCA points out, and many investors have lost a lot of money when trades don’t go their way.” However, he added: “The problem is that when retail traders make a loss, they are not in a position to absorb it as comfortably as high-net-worth individuals or institutional investors.”

Regulated access to retail investors?

The reduced risk appetite of retail investors as compared to institutional investors is one of the reasons that retail investors need protection from a regulatory body. But this doesn’t necessarily mean that all retail investors are unsophisticated and that they shouldn’t have an option to use derivatives to hedge risk in their portfolio.

Haohan Xu, CEO and founder of Apifiny — a global liquidity and settlement solutions provider — told Cointelegraph: “Derivatives do more than amplify gains and losses. They also help investors hedge risks. Just because someone is unsophisticated does not mean that someone should be denied certain options to hedge risks.”

The risks in the crypto derivatives market are comparable to the risks of the foreign exchange markets, which are also highly leveraged. In these markets, governments and regulators all around the world step in and enforce maximum leverage limits for investors. The FCA could resort to solutions like that instead of a blanket ban, according to Hao:

“It is incorrect to assume that all retail investors are unsophisticated. Many of them have been in the crypto space for a long time and have a very good understanding of digital assets. Rather than a blanket ban on crypto derivatives for retail traders, which adds an additional layer of gatekeeping to the crypto space, we believe that education is key.”

Another issue that a blanket ban brings up is that retail investors who are persistent in investing in these banned products will need to circumvent this rule and invest in markets that are not under the FCA’s protection. Hao further stated: “These investors would be outside of the purview and protection of the FCA — which is obviously counterproductive.”

Xu alluded to another method to circumvent the ban using decentralized finance markets, which have seen 30% growth since the beginning of this year: “Although not favored by regulators across the world, DeFi derivatives platforms are always an option for crypto derivatives since most of them can be accessed by anyone from anywhere with just a wallet.”

It seems evident that there might be a better solution than a blanket ban, as it could possibly do more harm than good at this point, leading U.K. investors to marketplaces with no regulations or to lowering Know Your Customer standards, which brings more risk to retail investors who don’t have the same safeguards as institutional ones.

Retail education and regulatory engagement

Even after announcing the blanket ban on crypto derivatives and exchange-traded note products, Bitcoin’s price drop to $33,000 on Jan. 11 led FCA to issue a public warning about the high risks underlying all crypto assets and assets linked to them. The agency has also stated: “If consumers invest in these types of products, they should be prepared to lose all their money.”

Hao elaborated on how education would be a more effective method to protect retail investors than outright bans: “Education is key, and giving investors the chance to demonstrate their level of knowledge and skill before accessing complex products is crucial.” He further stated: “Unfortunately, if retail investors are forced onto exchanges with lower security standards in virtual asset storage, they could end up suffering more harm from this ban.”

The crypto community has been contributing to these initiatives on education by establishing points and platforms for retail investors to be educated of any risks that are involved in trading within leveraged derivatives markets. Various exchanges have education and blog sections on their website tailored for retail investors to educate them on all these aspects. There are also exclusive blockchain and cryptocurrency education platforms, such as Blockchain Education Network, which was started by students at the Massachusetts Institute of Technology and the University of Michigan.

It’s also essential for the crypto community to engage with governments and regulatory bodies to establish frameworks that enable retail investors to navigate these markets with ease. Spiro stated: “The regulators’ priorities lie in protecting the financial ecosystem and consumers. Working collaboratively is the best way to pacify regulatory concerns while avoiding onerous regulation.”

Due to the size and volumes of the U.K. retail market in comparison to the global crypto derivatives market, it is highly unlikely that this ban will have a significant impact on the accelerated growth of the crypto derivatives that continues into 2021. According to Hao:

“The directional growth of derivatives is clear, and it will surpass the spot market in the near future. Exchanges have clients based all over the world, and as interest in cryptocurrencies rises, the jurisdictions that are more open and understand how best to regulate will end up being the winners in this race.”

Source: https://cointelegraph.com/news/uk-s-fca-crypto-derivatives-ban-may-push-retail-investors-to-riskier-grounds

Blockchain

India’s Crypto Ban Uncertain as Finance Minister Touts a Window for Experiments

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India’s Finance Minister told CNBC that the country’s reserve bank is not shutting out cryptocurrencies entirely. She said that while the Reserve Bank of India will decide which unofficial cryptocurrencies will be used and regulated, there will be “a window for experiments” in the industry.

New Lease Of Life For Bitcoin In India

India’s minister of finance, Nirmala Sitharaman, spoke briefly on the country’s standpoint on digital assets in a CNBC virtual townhall. She said that several negotiations are being held with the Reserve Bank of India regarding an impending ban.

A lower parliament in India raised a bill to ban all private cryptocurrencies in January. It said that the move was to facilitate the development of the country’s CBDC, which the RBI will issue and regulate. This did not go down well with cryptocurrency enthusiasts and industry stakeholders in the country. In response, they started an online campaign tagged #IndiaWantsBitcoin to get the RBI to reconsider its stance.

Sitharaman’s remarks suggest that the campaign was quite impactful. She said:

“A lot of negotiations and discussions are happening around the cryptocurrency with the Reserve Bank of India. RBI will be taking a call on what kind of unofficial cryptocurrency will have to be planned and how it has to be regulated. However we want to make sure that there is a window available for all kinds of experiments which will have to take place in the crypto world. There will be a very calibrated position taken. A lot of mixed messages are coming from across the world. World is moving fast with technology, we cannot pretend that we don’t want it.”

Sitting On The Fence

India is renowned for its controversial stance on bitcoin after several “back and forth” regulations. The government had initially banned cryptocurrencies in 2018 after warning investors. The halt was later overturned by the Supreme court. The apex court described the ban as “unconstitutional.”

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India’s lower parliament received backlash from the global crypto community for what seemed like a ridiculous exception to its proposed cryptocurrency ban. It said it will “allow for certain exceptions to promote the underlying technology of cryptocurrency and its uses.” Regulatory bodies in the country had severally pushed the motion to advance blockchain technology adoption while banning cryptocurrencies.

Its non-committal approach has raised question marks regarding the country’s future in the digital asset space.

Digital Rupee Still In The Picture

Although Sitharaman did not discuss the progress of the digital rupee, the second most populous nation may take a cue from its neighbors, China.

China has continued trials of its digital yuan and has distributed millions of dollars in the digital currency to its citizens.

India’s Reserve bank governor, Shaktikanta Das, said last month that although there is no set date for the launch, the digital rupee was “receiving full attention.”

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Source: https://cryptopotato.com/indias-crypto-ban-uncertain-as-finance-minister-touts-a-window-for-experiments/

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Cardano Price Analysis: 07 March

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The cryptocurrency market has been constantly forming crusts and troughs as it strives towards stability. Cardano’s market witnessed a similar trend wherein the price surged towards the end of February but has been correcting since.

At the time of writing, Cardano was trading at $1.13 with a market capitalization of $35.68 billion.

Cardano six-hour chart

Source: ADAUSD on TradingView

The above chart noted that the current market movement had formed a descending triangle and the price was sloping lower. The price has been supported at $1.06 as the trend becomes bearish.

This downwards trending price has been indicating a further drop making its way into the ADA market.

Reasoning

After witnessing increased volatility in the recent past, the ADA market is now seeing the volatility reduce. However, it has not yet shrunk to a level where a price swing was not possible. Since the descending triangle was a bearish trend, a price drop could make the market more volatile.

The signal line and the 50 moving average were also moving above the price candles and were acting as a point of resistance. Meanwhile, market momentum has turned negative due to the rising selling pressure in the market.

Despite the shift in momentum, the Relative Strength Index has remained close to the equilibrium zone. This could be a sign for the consolidation of the price at the current level but as bearishness increases, the consolidation phase may lead to the price breaking down.

Crucial levels

Entry-level: $1.07
Stop-level: $1.17
Take profit: $0.91
Risk to Reward: 1.53

Conclusion

The current ADA market has been seeing the price drop to its $1.06 support. As the price tests the support, the indicators have been highlighting an incoming fall. This fall could push the digital asset under the support and could bring the value under $1.


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Source: https://ambcrypto.com/cardano-price-analysis-07-march

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HODLing early leads to relationship troubles? Redditors share their stories

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Crypto investments have reportedly been a source of strife in relationships, sometimes leading to breakups and even divorce. 

According to a Reddit post from February 2015, a then 28-year-old woman using a throwaway account claimed that she was incredibly upset at her husband, who had not stopped purchasing Bitcoin (BTC) since 2013 without consulting her. She estimated that he had bought more than $22,000 in the crypto asset in the two years prior to the post, when the price reached a high of more than $1,000 but also dipped under $200.

“I kept telling him to sell as the price was rising and he promised me a big year in 2014,” she said. “The price kept falling and he continued to buy more. He makes more money than I do but we are building a future together and we have a shared bank account. He kept telling me this was for our kids’ college fund, to buy a house, etc.”

In the early days of Bitcoin and crypto when digital currencies were often used as a running joke for late night talk shows and comedians, many considered investing in the technology financially immature at the very least. Some people still do, even with the BTC price at more than $50,000 again.

The Redditor referred to her husband as “brainwashed,” saying he was “robbing [her] of happiness” and ruining her job by bringing up Bitcoin at her marketing events.

“After a recent price crash, he actually bought more using our vacation fund that I have been saving away for and planning. All gone, in Bitcoin never to be seen again.”

It’s unclear whether the couple stayed together following the response from the post, or if the husband sold some or all of the Bitcoin to ameliorate his wife’s financial concerns. The user compared her spouse to a drug addict and considered “staying in a hotel for a few weeks” to think about whether divorce was an option.

However, with the benefit of hindsight, the husband’s early investment could have easily paid off in the millions of dollars. Even assuming he purchased BTC after the price surge to $1,000 in November 2013, the 22 coins would now be worth more than $1 million.

Because the story was posted on the r/relationships subreddit rather than a pro-crypto group like r/Bitcoin or r/cryptocurrency, many of the Redditors encouraged the user to separate her finances and consider divorce proceedings. Few crypto enthusiasts jumped on the thread to comment, but one predicted that the BTC would one day be “worth fortunes” and recommended the husband continue to HODL.

Another story from a Redditor following the 2017 bull run — which brought in many newbies to the crypto space — claimed that his girlfriend was considering breaking up with him following “a huge investment in cryptocurrencies.” However, digital currencies seem to have played less of a role in his story, as the user said he crashed a car while driving drunk and was pressuring his significant other to leave her job.

Though many crypto traders know the price of Bitcoin and other digital currencies will likely continue to be volatile, the adoption and investment from major companies have helped push the technology closer to the mainstream, and made it seemingly more responsible for investors to get in on the action earlier rather than later. Already Shark Tank star Kevin O’Leary has claimed to have increased his stake in Bitcoin while asset management firm Third Point CEO Dan Loeb recently said he had been doing a “deep dive into crypto.”

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Source: https://cointelegraph.com/news/hodling-early-leads-to-relationship-troubles-redditors-share-their-stories

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