A new guidance document from the US Commodity Futures Trading Commission (CFTC) could have a negative impact on the growth of crypto-derivatives platforms in the United States.
The guidance document published by the CFTC is causing turmoil among the various derivatives platforms. For years, the crypto industry has been waiting to attract the attention of global regulators. The market should now bask in newly won security. The regulators were quick to take a close look at the crypto-currencies, but they were nowhere near big enough to formulate new rules.
CFTC wants to regulate derivatives trading more strictly in future
Exchanges with futures and options that are not subject to regulation by the CFTC must mandatorily give clients the opportunity to take delivery of the underlying instrument. Having operated without much regulatory interference so far, various legal bodies in the United States want stricter supervision of money laundering. This should create rules for the industry. The CFTC has now commissioned a derivatives platform to enable clients to accept the underlying assets. Crypto-derivatives are, with the exception of Bakkt, all cash settled contracts, which are called CFDs (Cash for Difference). This new rule forces them to change the way they work. It is not known how these exchanges will react and whether they will execute the delivery. Either way, the derivatives market in the United States will change.
Crypto currencies are still young, with a total market capitalization that cannot even compete with companies like Amazon or Apple. Only when capitalization increases do regulators take the time to tackle industry regulation. Regulations, such as the CFTC’s guide, are designed to help provide a higher level of security.
Private platforms like Bitmex and Bybit remain legal
The CFTC considers Bitcoin and Ethereum as commodities and not securities. Trading therefore remains legal, but is supervised by the CFTC. However, the new derivative contracts must comply with the agency’s new guidelines. Either way, better regulation is needed to attract a wider range of participants, including larger institutions.
*Originally published in German at CVJ.ch