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UK Watchdog Cracks Down on Cryptocurrency-Based CFDs

  • Alex Morris
    📰 News

    Cryptocurrencies come under closer scrutiny in the UK as the FCA mulls a potential ban on contracts for difference (CFDs) and other crypto-related derivatives

UK Watchdog Cracks Down on Cryptocurrency-Based CFDs
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Contents

While the cryptocurrency market remains in the doldrums with Bitcoin hitting a brand-new yearly low, regulatory pressure is mounting in the UK. Financial Times reports that the Financial Conduct Authority (FCA) is currently mulling over banning cryptocurrency-based contracts-for-difference (CFD) that allow dipping toes in cryptocurrency investment with borrowed funds.

The potential restrictions  

The FCA revealed that it would take a much harsher step than European regulators, going as far as fully prohibiting CFDs for investor protection. This kind of complex derivatives is tempting because of huge potential profits, but gargantuan losses are also possible (especially, when such a volatile asset class is concerned). According to their estimation, such a move would result in retail investors losing more than £450 mln annually.

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Derivatives dealers remain dismissive

Liberum’s analyst Ben Williams is certain that the crackdown will produce very little effect on the industry, considering its current predicament. Today, very little money is made because of crypto-CFD trading in sharp contrast to December’s peak when Bitcoin reached its current ATH of $20,000.

CMC Markets, the country’s leading derivatives dealer, confirms Williams’ statement, claiming that cryptocurrency-based CFDs are a non-factor, and they are not threatened by the looming prohibition. IG Group also states that the proposed CFD restrictions won’t impact their performance expectations.

Ongoing regulatory crackdown  

Meanwhile, the FCA keeps local businesses in its crossroads. Recently, the UK’s top accounting firm, Moore Stephens, revealed that the number of crypto-related investigations more than doubled this May. It is expected the regulatory scrutiny will get even closer unless there is a properly regulated environment. Back in October, the British watchdog released the Cryptocurrency Taskforce report, which includes all the steps that should be taken in order to make cryptocurrencies safer for investors.
 

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UK Publishes Information on Tax Issues for Crypto Investors

  • Stavros Georgiadis
    🤷 Opinions

    The UK government is signaling that it is treating crypto assets more as property than as a form of money

UK Publishes Information on Tax Issues for Crypto Investors
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The UK’s Revenue and Customs agency (HMRC), which is responsible for collecting taxes, issued a detailed report on how crypto assets might be taxed, but this for now applies only to individual traders and not to businesses.

UK taxation on crypto assets

The UK government is signaling that it is treating crypto assets more as property than as a form of money. And this is in contrast with the main idea of cryptocurrencies, being an alternative form of digital currency, a decentralized form of financial payments and different from so called fiat currencies and money.

HMRC does not consider crypto assets to be currency or money, but rather utility tokens or security tokens. A very important highlight is that, for tax purposes, the focus is on the token’s use, and by no means based on its definition. What this really means is that individual traders or investors in the UK will pay capital gains and income tax if they receive cryptocurrency tokens by their employers as a form of compensation, such as a bonus for their performance.

It is also noteworthy to mention HMRC will not consider the purchase and sale of crypto assets to be the same as gambling. And HMRC will soon issue guidance about tax issues related to the businesses and more details about how the forks of a blockchain may impact taxation as well.

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Beware of cryptocurrency trading groups

Researchers recently announced that they found literally thousands of groups on messaging applications with the main purpose the manipulating the price of cryptocurrencies, which is both illegal and immoral. What is interesting in the report is that the lower the volume of cryptocurrencies, the much easier it is for their price to be manipulated due to the illiquid market conditions.

In the US, where the regulation of financial and capital markets is very strict and high fines are imposed on fraudulent activities, two bills about cryptocurrency manipulation will soon be sent for consideration to the House of Representatives. And it is no surprise that technological stock exchange Nasdaq has mentioned that it already has a technology that can address potential manipulation of the cryptocurrency market.

Trading in any financial market entails a lot of risk regarding losses of the invested capital. The cryptocurrency market is no exception, and though it has been criticized heavily in the recent past, the appearance of illegal pump-and-dump groups should really be of no surprise at all. It is highly recommended that traders avoid these groups, conduct their own due diligence, and invest or trade based on their own trading plan.

Financial history has shown that these illegal groups have been active in equities, mainly low volume stocks, the Forex market, options and in general, almost all types of financial instruments.

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