A leading change in the European cryptocurrency market is occurring as the UK’s Financial Conduct Authority (FCA) is not regulating derivatives. With the European Union's MiFID 2 regulation introduced this year, UK authorities have concluded that it falls under this type of regulation. This likely sets a precedent that will extend into other EU countries.
The government is not considering that cryptocurrencies should be treated as a currency or even commodities. Instead, they think of them as financial instruments, like derivatives, and the regulation will be treated as such.
It's been well over a month that European Securities and Markets Authority had tightened requirement for ICOs to obtain Contracts For Differences. With this previous regulation, ICO starters in Europe must provide at least 50% of the funds for a CFD. Prior to that decision, ICO starters only needed to provide a mere 20% of the CFD amount. The concern of the ESMA is the high volatility of cryptocurrency investments that have been noticed this year.
The current regulation by the FCA dictates that futures, contracts for differences (CFDs), and options may be controlled in the realm of cryptocurrency. These are only examples and regulation may expand into other types of contracts.
The Autorité des marchés financiers (AMF) from France is also a leading the way for regulating cryptocurrencies. Since European companies had been releasing binary options for cryptocurrencies, this French authority had sought to define guidelines for this type of trading.
It is not unlikely that some sort of derivatives regulation will come to the United States. Morgan Stanley and Goldman Sachs are working on cryptocurrency futures trading with the CME Group. Other financial companies are likely to follow suit.
What is a What is a 'Derivative' in relation to crypto trading?
A derivative is a security that is derived from other underlying assets. It is based on contracts that define a set value of cryptocurrencies and the price is adjusted due to market fluctuations. Crypto Derivatives exchanges exist in many online markets but it still is uncommon to see such trading within traditional markets. Over-the-counter trading is possible but not common due to the risks involved.