On August 1st 2018, the European Securities and Markets Authority (ESMA) imposed a limit on the leverage a retail trader could use when buying a crypto contract for difference (CFD). The ESMA limited this leverage ratio to 2:1 for all retail investors, meaning that a trader must have at least 50% of the cash needed to buy the CFDs position.
The original limits were supposed to only be in place until November 2018. Yet, the ESMA has increased this limit a further three months, meaning it will end in February 2019 – unless it decides to extend the limit once again. This new limit extension doesn’t affect institutional investors and is designed to help keep retail investors safe from extreme volatility. If an investor holds a €1000 position at a 2:1 leverage and the price of Bitcoin tanks that investor could be left with a sizeable deficit when they come to sell their position. Alternatively, if the price increases so too does the investor’s return by a larger amount – this is the main attraction about margin trading.
EU Working on Regulations
One reason behind the extension could be due to the fact that the European Union (EU) is preparing to hold more talks about cryptocurrency regulation. The EU will have extended the limits to ensure that in the short-term crypto trading is semi-regulated and investors are kept protected. There is a good chance that when the EU launches its regulations that this limit will be removed or set at a higher level – it could even be tiered based on an individual’s net worth. This could negatively impact the price of Bitcoin – and other cryptos for that matter – as it could be construed as the EU has a low level of confidence in the crypto markets.
Canada Cutting Out Retail Investors
Over in Canada, the Canadian Securities Agency (CSA) has approved its first Bitcoin mutual fund. However, only accredited investors can currently buy into the fund. In an exclusive interview with BitStarz News, when asked if First Block Capital – the company behind the Bitcoin mutual fund – was planning on creating a fund that is available to regular investors. Sean Clark – First Block Capital CEO – said, “That that was the original vision and this is a step towards that original goal. In short, First Block Capital is looking to create a Bitcoin ETF in Canada for retail.”
While First Block Capital has managed to conquer the accredited investor market, it is slowly working towards letting retail investors join the party. Hopefully, the CSA and ESMA don’t keep retail investors out in the cold for long.
There is a growing demand from the retail investment market for crypto products. There is already a handful available on the market – such as the XBT Provider BTC ETN – but these are inferior products when compared to the First Block Capital Bitcoin Mutual Fund. If retail investors were given a quick, easy, and familiar window into crypto markets, we could see an unprecedented level of buy order raised in crypto markets around the globe.