The Financial Conduct Authority, a financial regulatory body in Great Britain, has made it illegal to offer or trade bitcoin or other crypto properties to novice buyers (FCA). It’s just another blow for the thriving cryptocurrency market, coming only days after the owners of BitMex, a groundbreaking crypto futures exchange, were detained by US authorities for operating without being US-registered and allegedly violating anti-money-laundering rules. But before we further dive into the guide, if you want the best platform that can update you with the latest news and trends about bitcoins, then you should visit https://trustpedia.io/trading-robots/immediate-edge/ and learn more.
As a consequence of recent research, first, from the University of Oxford, other businesses could be vulnerable to prosecutions. The reports explain that most bitcoin investment firms are still operating without a permit. All of it seems to be disappointing news for those who believe that more people will participate in the currency market. I’m not sure, however, after more investigation.
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The FCA has made it illegal for retail investors to buy and sell bitcoin contracts, which are frequently used to bet heavily on financial technology. For example, you can buy an option to sell a certain number of bitcoins at current prices if the price declines by 10%, giving you a safety net if the economy turns against you.
To be sure, the ban does not extend to stock traders or private firms like hedge funds, who have historically had access to highly risky debt reserves than the general public. It’s about protecting people who were drawn to bitcoin whether they “thought it would just be the currency of the day” or because they “heard sensational press headlines about its rise and fall.” There is also a plethora of flashy trader sites that offer them an easy and fast entry into the world of exchange and YouTube opinion leaders that constantly motivate them to attempt complicated investing.
Cryptocurrencies are held by 1.9 million people in the UK, accounting for around 4% of the community. Three-quarters of those surveyed have portfolios worth less than £1,000, showing that they are most likely retail investors. We don’t understand how popular bitcoin options are among UK investors, but we do realize that the currency market of these derivative instruments contributed to roughly half of the overall crypto market in 2019. (and has been increasing in 2020).
On the other side, retail investors are expected to be the largest purchasers of shares. Early next year, the online trading platform eToro revealed that this category accounted for just around quite a fifth of their fund manager investment. Since the bulk of the UK part relies on non-UK based markets, it’s often easy to avoid FCA jurisdiction. The FCA estimates that the prohibition would save consumers between £19 million and £101 million in losses and fees per year.
The ban has had little effect on a world scale. The UK bitcoin market is a drop in the pool as compared to exchange site deposits of US$335 billion (£258 billion). Consequently, you wouldn’t expect the FCA’s ban to have a significant impact on bitcoins or another main energy cryptocurrency like Ethereum’s market, and it didn’t. Market analysts had expected that and had most certainly taken into account their projections.
Excessive Risk and A Strong Level of Uncertainty
The fact that bitcoin’s valuation is somewhat volatile has long been a thorn in the sector’s side, with some experts arguing that this prevents it from functioning as a medium of exchange or having a decent value. Some might argue that banning such types of swing trades will serve to reduce confusion.
People who buy options can be highly leveraged, meaning they are borrowing to increase their trade size to optimize potential earnings (or losses). Many countries, particularly in Asia, enable banks to borrow up to 15 times the volume of payment, with some also allowing for 100 times leverage.
When bonds are used, investors enter and exit the company more quickly when their cost or profit multiplies by the sum they have borrowed. As a consequence of this business effect, price volatility has risen. However, since bitcoin’s valuation has recently dropped to an all-time low, the ban has little impact in this regard.
To end on a positive note, the FCA justified the ban by stating that there is “no plausible basis” for the valuation of bitcoins. It didn’t say the cryptocurrencies were worthless. This is a significant change from recent government comments, indicating that bitcoin is becoming more widely accepted.
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