Any investment vehicle linked to cryptocurrencies will be scrutinized by regulators. Derivatives products are no different in this regard. Bafin, the German financial authority, expects more regulatory measures for these products to be introduced fairly soon.
Crypto Derivatives are Popular
A lot of investors want to be exposed to bitcoin and other cryptocurrencies. For most enthusiasts, owning and managing these currencies has been a major headache. It is only normal to see them flock to other solutions, such as investment products tied to bitcoin and altcoins.
Over the past few years, multiple companies have begun offering cryptocurrency derivatives. These vehicles provide price exposure without owning the crypto asset in question. For institutional and professional traders, it is the preferred method of dealing with these innovative digital assets.
A new survey by German financial services authority Bafin paints an interesting picture. Most of the respondents seem to expect an increase in regulatory measures. There are still plenty of risks for market participants in the crypto derivatives space. Addressing these risks, either through regulation or otherwise, needs to be a priority.
More Scrutiny Isn’t bad
Regulatory measures in the crypto asset industry often have a bad reputation. This is not because of the measures themselves, but rather the meddling by governments and regulators. Many people feel decentralized assets should not be scrutinized in such a way.
At the same time, these guidelines introduce more legitimacy. Derivatives and other vehicles gain legal recognition through these measures. It also keeps the service providers in check accordingly. Banks and other providers exposing their customers through derivatives need to take a cautious approach.
Some even call for banks to alert regulatory authorities of their crypto-related business plans. In doing so, they can obtain the necessary support prior to launching the product in question. Cryptocurrencies are still an immature asset class at this stage. Derivatives linked to these assets will remain somewhat controversial for some time to come.