The French financial regulator has moved to curb the recent craze for betting on the movement of cryptocurrencies via currency trading platforms.
The Autorité des Marchés Financiers (AMF) declared on Thursday that digital currencies should be officially treated as derivatives, rather than currencies, meaning trading must be regulated in the same way as the online trading of stock and other commodities.
Under the new AMF rules, platforms that offer crypto-betting products must gain special authorization from the authorities and “abide by the authorization and business conduct rules … and they must not be advertised by electronic means.”
The regulator confirmed that a “cash-settled cryptocurrency contract may qualify as a derivative, irrespective of the legal qualification of a cryptocurrency.”
The hype surrounding bitcoin has inspired currency trading platforms to offer a slew of crypto-based products, like binary options, contracts-for-difference and rolling spot forex.
These enable customers to speculate on the fluctuation of cryptocurrencies without actually having to hold any of the underlying asset (the currency itself).
Regulators are concerned that amateur traders caught up in the craze may not fully understand the risk. Many currency trading platforms offer leveraged betting, which means clients can suddenly generate large and unexpected losses – in some case up to 200 times their stake.
In January 2015, when the Swiss National Bank suddenly eliminated the €1.20 ceiling for the Swiss franc, it unexpectedly surged in value, leaving some amateur traders who had bet against it with five-figure losses.
There are fears that if bitcoin is a bubble that will burst, it could spell disaster not just for those who have invested directly in the cryptocurrency itself but also those riding the wave of crypto-betting.
Other Regulators to Follow?
The EU has recently spearheaded a crackdown on derivatives marketed to retail investors, but France’s AMF is the first EU regulator to define cryptocurrencies commodities for the purpose of online betting, and the move may prompt others to follow.
Last week a Treasury committee in the UK announced it would investigate the risks and benefits of cryptocurrencies to better understand how they should be regulated in the future.
“People are becoming increasingly aware of cryptocurrencies such as Bitcoin, but they may not be aware that they are currently unregulated in the UK,” said Conservative MP Nicky Morgan, the committee’s chairwoman. “Striking the right balance between regulating digital currencies to provide adequate protection for consumers and businesses, while not stifling innovation, is crucial.”