The FCA’s recent announcement about potentially placing a permanent ban on cryptocurrency CFDs managed to rile up the crypto community quite a bit.
Many started speculating that the UK was starting to become very aversive towards crypto because of post-Brexit fears.
However, many investors missed the point of the crypto CFD ban, as it could potentially boost the crypto market to new proportions. Why? Because it’s not actually banning cryptocurrencies, it’s just banning CFDs.
What is a CFD? All you need to know is that it’s not real cryptocurrency and therefore does not have any effect on the market. It’s just a contract specifying that a trader has purchased the asset at a certain price point. That contract can later be sold for a profit.
But why would the ban be beneficial to the overall crypto market? Well, let’s find out.
The only competitors that CFD brokerages have to face are the crypto exchanges themselves, you know, the platforms where actual cryptos are traded?
The competition works vice-versa as well, as some crypto exchanges introduced margin trading features in order to somehow remain competitive against CFD brokerages, who are notorious for offering maximum 30:1 leverage on some assets (at least in the EU).
After ESMA introduced the new regulations, the leverage on crypto CFDs came all the way down to 2:1, which meant that crypto exchanges with margin trading quickly became much more competitive, but still lost some traders to those platforms.
Should the ban remove crypto CFD offerings completely, all the traders that used those platforms will funnel into crypto exchanges and support the daily traded volume.
Why the ban?
Another question that traders are asking if the ban was necessary at all, as crypto CFDs were already becoming quite redundant because of their declining traction from investors.
The FCA justified their announcement with the risks associated with CFDs on cryptocurrencies and said that they would be saving the UK investors as much as $500 million on a yearly basis after the introduction.
This could have been fueled by post-Brexit fears from the regulator as the economy has been on a downward spiral in anticipation of it already, imagine what will happen when Brexit actually occurs.
Despite the fact that they’ve already agreed to implement ESMA regulations in a permanent manner, they may be free from any external pressure once they leave the EU.
This could have also been a move to “free up” some space to support other markets rather than waste resources that didn’t really have much effect on the local economy.
Will the ban actually happen?
As already mentioned, the ban is not yet confirmed, there’s only speculation that it will be implemented.
The FCA is going to convene sometime this week and come out with a final decision. They’re sure to receive some complaints from local CFD brokerages which could cause delays, but in the grand scheme of things, the regulator wouldn’t have announced it in such a manner if they weren’t already set on implementing it.
Therefore, this week we could see the crypto CFD market completely gone from the UK, which has one of the densest population of crypto enthusiasts in the world.
Once the ban happens, crypto exchanges can expect a large influx of willing investors on their platforms.
All we can hope for is that the new traders can contribute enough to the market so as to push the BTC dominance even higher and introduce another bullish run.