Starting from January 6 next year, it will prevent the sale or promotion of cryptocurrency derivative products to UK retail investors.
The decision, issued by the British Financial Regulatory Authority, represents, from some point of view, a blow to the booming cryptocurrency market in the United Kingdom, but according to official authorities, it will save retail investors annual losses estimated at $ 69 million.
The process of buying or selling cryptocurrency derivatives is a method that is mostly used as a way to hedge against a significant decline in the value of those currencies, for example, an investor can buy one of those financial derivatives, and it includes his agreement to sell a certain number of cryptocurrency units at today’s price, as its price has fallen 10 Percentage of the price he bought at, in anticipation that prices would decrease further and his losses would increase, and in practice this means that the retail investor buys an insurance policy if the market moves against him.
Therefore, these derivatives may appear positive, and are in the interest of small investors, but experience has revealed that most retail investors are “amateurs” who do not have accurate experience or knowledge of the market and its movements, and then according to those derivatives they dispose of their currencies when their prices decline certain in anticipation and fear of More price drops and more losses.
In fact, because the cryptocurrency market is very volatile and difficult to assess, the decline may be temporary and for a short period, and then rushing to sell may result in huge financial losses for these “amateur” investors.
Although there is no data on the numbers or percentage of investors buying cryptocurrency derivatives in the United Kingdom, international statistics on global trade in these financial products were almost a fifth of the total cryptocurrency market last year, and it has grown rapidly this year as a kind of Hedging against the negative effects of the outbreak of the Corona epidemic, and if we take into account that 1.9 million adults in the United Kingdom, or 4 per cent of the adult population, own cryptocurrencies, and that three quarters of British companies own cryptocurrencies worth less than a thousand pounds, which puts them in the box For retail investors, the British decision is extremely important to a significant sector of the population.
Banking expert Dorsey Steve points out that the British Financial Regulatory Authority’s decision did not extend to professional traders, or institutional companies such as hedge funds, which usually allow them to deal with more risky and complex financial products that small investors deal with.
She told Al-Eqtisadiah, “The decision aims to protect people who are attracted to cryptocurrencies as currencies of the future, especially after they heard about the dramatic rise and fall in the value of those currencies, and if we look at the Internet, we will find a large number of trading sites that encourage inexperienced people.” , On pumping their property and financial savings to invest in the world of cryptocurrencies, while drawing a rosy picture of the returns that they achieve in the future, and in most cases this picture is not accurate or balanced as it avoids mentioning losses or minimizing them.
However, the importance of the UK Financial Regulatory Authority’s decision does not stem from its direct impact on the global cryptocurrency markets. The UK cryptocurrency market represents only a fraction of the $ 335 billion in the international cryptocurrency market. Therefore, the decision will not negatively affect prices. Those coins
But the seriousness of the British decision stems from what Professor M. D. Rahul, the former head of the British Capital Market Regulatory Authority, is making increasing international efforts to control and regulate the cryptocurrency market.
He assures Al-Eqtisadiah that in the crowd of global talk about the negative conditions that the international economy is going through, many analysts do not pay attention to the efforts of central banks to gradually enter the world of cryptocurrencies to subject it in one way or another to state control.
He added, “From here comes the importance of the British decision, as it is part of international efforts to control the markets of those currencies, and it is a model that will be emulated in the future by many countries and leading international financial regulators in this field, such as SIC in the United States and Baffin in Germany as well as the authorities. The regulated government in Asia, which is all working to trim the violent fluctuations that occur in the prices of cryptocurrencies, when small investors buy these derivatives, this is done by borrowing at high interest rates, that is, they borrow to increase the volume of their trade to achieve gains (or avoid potential losses) greater And when trading begins on the virtual currency exchanges, speculators from retail investors enter and exit the market very quickly, and this doubles the losses and gains in relation to the ratios they borrowed, and this violently affects the markets and increases price fluctuations.
Nevertheless, the impact of the British decision will not stop at those limits, as an important group of experts indicate that the adoption of a number of other major international regulators to the same direction, will practically mean restricting the work of unregistered stock exchanges such as the Betamex exchange in the United States, and this may cause a liquidity crisis as a result. Small investors withdrew their money en masse.
But regardless of this aspect, it is noteworthy that the logic of the British Financial Regulatory Authority reveals changes in the vision of government financial and regulatory institutions of the world of cryptocurrencies. After years of continuous government condemnations of those currencies, and a violent pursuit of them by the regulatory authorities, there are increasing indications of government acceptance of them and a willingness to deal with them, but according to the vision of government agencies.
Finally, the Bank for International Settlements and seven central banks including the Federal Reserve, the European Central Bank and the Bank of England have published a joint report that clarifies some of the main determinants of the digital currencies that will be issued by central banks.
The report indicates that the cryptocurrencies issued by central banks must be complementary to, and not replace, cash in circulation, and to support monetary and financial stability and not harm them, and to be safe, cheap and free as possible to expand the base of their use, in addition to having a suitable role for the private sector.
For her part, Dr. Fran Charlie, professor of money and banking at the University of London, believes that by the middle of the century, cryptocurrencies will be part of the monetary system controlled by central banks, and that this trend has become more supported by governments to overcome the increasing use of cryptocurrencies in activities other than Lawful and specifically money laundering.
She told Al-Eqtisadiah, “We cannot set a unified model for how central banks will deal with the unified currencies that they will issue, if the matter will differ from one country to another due to national priorities and conditions, but we can set broad lines that everyone can require.”
In fact, the relationship of central banks with digital currencies gained strength last year after the famous social networking site Facebook announced that it would launch its own currency, Libra, which is supported by a coalition of companies including Uber, Spotify, Microsoft and Visa, but the Facebook project was met with a violent response from the legislative and regulatory authorities in the states. What prompted Microsoft and Visa to withdraw from the project.
Nevertheless, it can be asserted that central banks have begun studying the options available to them to deal with digital currencies, and there is no doubt that the agreement of seven central banks on the common principles and defining the broad and necessary features of the digital currency system represents an unprecedented step in this field, and provides a framework for how they will deal in the future with those currencies. And prepare to be accepted as part of the international financial payments system.
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