FCA Bans Crypto Derivatives and ETNs for Retail Investors, Square Bets $50 Million on Bitcoin
This week CryptoCompare data shows the price of Bitcoin (BTC) moved steadily up from around $10,600 to an $11,400 high. The cryptocurrency has seemingly finally been able to breach the $11,000 mark as it’s now trading at $11,350.
Ether (ETH), the second-largest cryptocurrency by market capitalization, started the week around $350 and moved down to $335 before recovering. After the price of BTC surged past $11,000, ETH moved up to $370, and has been trading around that area since.
This week the UK’s markets watchdog, the Financial Conduct Authority (FCA) has banned the sale of cryptocurrency derivatives and exchange-traded notes (ETNs) to retail investors. In an announcement, the FCA detailed it sees cryptocurrency derivatives and ETNs as “ill-suited for retail consumers due to the harm they pose.”
To the FCA, these products “cannot be reliably valued” by retail investors because of several factors, which include the ““prevalence of market abuse and financial crime” in the secondary market, along with “extremely volatility” in cryptoasset prices and “inadequate understanding of cryptoassets by retail consumers.”
The FCA estimated retail investors will save around £53 million ($68.5 million) from the crypto derivatives and ETNs. The ban is set to come into effect on January 6, 2021. Notably, in a 55-page report the regulator released, it’s shown that 97% of those it consulted were against the ban.
The public consultation process gathered a total of 527 responses from companies that sell derivatives, cryptocurrency exchanges, trade bodies, individuals, and law firms. Most respondents questioned the FCA’s assertions on cryptocurrencies and their intrinsic value.
The move was likely made to protect retail investors from some of the volatility in the cryptocurrency space, as one wrong bet could easily lead to liquidation. Binance’s DEFI Composite Index, an index calculated using weighted averages of a basked of tokens associated with decentralized finance (DeFi) protocols to track their market performance, has lost about half of its value since it was launched.
While DeFi-related tokens were booming last month, their growth has seemingly stalled now, even though interest in DeFi protocols has kept on growing. Some tokens have lost well over half of their value over the last few weeks.
Other pitfalls in the cryptocurrency space include exit scams and projects created to enrich their founders, with no real product. This week a fake liquidity mining project cost users $140,000 in tokens that had been airdropped to investors who interact with Uniswap.
Token price drops were accompanied by a drop in transaction fees on the Ethereum network, the number one blockchain used for DeFi protocols. Network congestion has been easing as, presumably, most traders are no longer rushing to earn yield on DeFi tokens, as they stopped appreciating so rapidly.
While network congestion eased, Ethereum browser wallet MetaMask, one of the main wallets used to interact with decentralized applications, has surpassed one million monthly active users this week. IT also launched a token swap feature that will aggregate decentralized exchanges.
CME Bitcoin Options Contract Volumes Surged 79% in September
CryptoCompare’s September 2020 Exchange Review has revealed that a total of 4,872 bitcoin options contracts were traded on the Chicago Mercantile Exchange (CME) in September of this year, up from 2,717 in August.
The 79.3% increase came in a month in which the price of bitcoin was unable to break its range between $10,000 and $11,000, and in which the CME’s BTC futures contract volumes remained relatively steady: 201,893 changed hands, down from 203,867 in August.
Fintech firm Square, a company co-founded by Twitter CEO Jack Dorsey, has revealed it made a $50 million bet on bitcoin, as it “believes cryptocurrency is an instrument of economic empowerment.” The move comes a month after business intelligence firm MicroStrategy made a $250 million bet on BTC, followed by more BTC purchases.
Square detailed in a press release it “purchased approximately 4,709 bitcoins” with the $50 million it invested. The investment “represents approximately one percent of Square’s total assets as of the end of the second quarter of 2020.”
This week it was also revealed that the digital currency being developed by China’s central bank, the People’s Bank of China (PBOC), has reportedly already been used to move over 1.1 billion yuan ($162 million) in over 3 million transactions amid ongoing pilot programs.
Speaking at the Sibos banking and financial conference, deputy governor at BOC Fan Yifei said the transactions were made in various tests occurring in major cities in China such as Shenzhen. The digital currency’s users have created over 113,300 personal wallets and 8,000 corporate wallets.
Crypto AM: Market View in association with Ziglu