UK regulator clamps down on Binance
bbc.com
bbc.com
The entity that the FCA has acted against is Binance Markets Limited (BML) which the parent Binance Group acquired earlier this year, in part because of its existing registration with the FCA which allowed it to carry out a limited range of regulated activities in the UK.
The FCA has now placed restrictions on BML which remove its ability to carry out those regulated activities -- however BML was not actually doing any business in the UK so the effect of this is limited.
The FCA also issued a consumer warning which, among other other things, reiterated that no entities in Binance Group are registered with the FCA and therefore cannot carry out regulated activity in the UK. Again, the impact of this is limited since the entity that you interact with when using the Binance.com website is not based in the UK, and the FCA does not have jurisdiction over it.
A possibly outcome is that Binance will be a bit more circumspect about offering derivatives trading to UK retail because they want to build a more substantial UK business in the future. We saw this with Bybit a while ago, where they do not allow UK retail to use their website (although they have an exception for sophisticated investors, who can self-certify as an eligible counterparty and continue to trade on Bybit). I wouldn't be surprised to see this.
Why would you say that? Providing services to any British citizen over the internet will fall squarely within the regulatory domain of the UK, regardless of the website used to connect, the physical location of the server or the jurisdiction of the company.
They seem to have a number of offices in places, one per country. The US one is in Fresno, CA.
Their headquarters is in Malta.
They sell derivatives, and they are headquartered in Malta. Who actually uses good or services from these people?
Are you referring to just the BML subsidiary or Binance Group? Binance does provide its own coin (BNB), which can be used to pay fees on their exchange. That they provide access to an exchange people pay to use, seems like a service.
The whole thing with this is it shows how powerless nationstates have become in their ability to regulate these kind of things. Binance has the possibility of being regulated to death, but what about the decentralized derivitives exchange DxDy or Sythetix? Here in the US it is illegal as a retail investor to have more than 3x trading leverage on securities. I can get access to 10x leverage on Sythetix as a retail trader which is technically illegal, but since it's not a security it's in this weird gray area. Even if the US finally starts understanding the possibilities inherent in crypto, they wouldn't be able to stop it even if they brought the whole weight of the US nationstate ontop of it. It's decentralized. You'd have to shut down Eth, Matics, DOT, Solana, Etc. To stop these kind of exchanges. Each of these orgs might have a few people to arrest or point too, but are largely 'Decentralized' and already on the blockchain.
Are Binance not required to make would-be customers jump through all sorts KYC shaped hoops?
The USA did exactly this with a large publicly traded UK company. They arrested the executives the moment they touched down in the US on a transfer flight.
The CEO is now going to jail: https://casinobeats.com/2020/03/26/pokerstars-founder-isai-s...
If it goes so fart that regulators start send subpoenas or other legal requests to banks Binance uses, those banks will comply if they want to have transactions in UK. Alternative is that all money transfers from UK will cease. Not only Binance would be cut from the UK but also other bank customers.
/s
> How can that be? In general, the FCA can only regulate companies that are either based in Britain or that actively promote products there. A bitcoin trading platform registered elsewhere doesn’t necessarily count: according to Forbes Binance is based in the Cayman Islands. Founder Changpeng Zhao sought regulatory approval for Binance Markets, but its main services are unregulated and offered instead by the parent group. It’s not clear what he did to irk the FCA, or whether his customers will care. What’s obvious, though, is that the watchdog lacks powers to police a fast-growing part of the financial sector. (By Liam Proud)
Futile UK crypto curb flags regulatory blind spot
https://www.reuters.com/breakingviews/futile-uk-crypto-curb-...
The "impact" of this is that the regulators are beginning to take actions against the wild-west of the crypto world, regardless of how toothless each individual action is.
Put aside your opinions of cryptocurrencies as a technology...there's no way sovereign governments were going to let this fly. There fireworks are just starting.
Well, you say, they wouldn't get registered because they wouldn't have what they would need to provide a fair risk to customers. Then what? People will simply run the exchanges elsewhere and the money will keep getting "lost", "stolen" or seized by the authorities.
This undue confidence or trust we bestow in regulated banks comes at the expense of the wider public: when we lose our deposit due to insolvency, everybody is forced to pay for it by the monetary expansion of the ECB, which covers our loss by printing (or by digitally creating) more euro, and distributes this minted money to the affected bank, allowing withdrawals to resume. This intervention of the ECB dilutes the purchasing power of every unrelated person holding euro, regardless of their country of residence, and regardless on how meticulous they are in choosing a reliable bank. Even the CFA franc in West Africa suffers from this enforced depreciation, being pegged against the euro at a fixed ratio.
Thus, the account holders gain an artificially strong confidence in the bank of their choice, regardless of whichever bank that might be, regardless of how much risk exposures the bank takes, regardless of what financial instruments it edges against, and regardless of the size of its fractional reserve compared to its liabilities. It is an insurance whose only purpose is to allow the bank to take undue risk with volatile instruments and to collectivize any resulting losses against the public, while deluding the account holders with the ancillary excuse that their deposits are safe no matter what.
The alternative to having 21 year old Joe running a million-dollar crypto exchange website from a laptop in his basement is to apply fucking due diligence in choosing our counterparty, and prosecute whenever proper fraud and intentional deception take place.
Defi protocols (at least on eth) are open source, so I can verify that they are doing what they are supposed to be doing and use those products. It would be far from ideal if some regulator decided that we can't use it because reasons x,y,z.
They don't stop innovative financial products from being built, they might stop them from being used for a particular purpose or even at all depending on how a particular development impinges on the list of items for which they regulate.
Amongst others, and depending on where you live your local regulators may add or subtract from this list considerably:
- fairness
- transparency
- stability
- anti money laundering
- anti terrorism financing
- tracking of ultimate beneficiary owners
The company I work for is owned by a huge French bank. Even though I am in tech I still need to do some mandatory (legally required) training, and one of the courses is Treating Customers Fairly.
The FCA say "Treating customers fairly is a requirement for all regulated firms, no matter their size or the nature of the activities they undertake".
Not for you to say. Society as whole decides which regulations are ideal.
Famous people are literally pumping scams to millions of followers on social media every single day, so I'm not sure a couple people getting sued means anything.
> Human society, the historian Niall Ferguson says, oscillates between the dynamic of a metaphorical “tower” and the “square”. Sometimes institutions or leaders control social groups in hierarchical ways, just as church towers overshadowed medieval European cities.
> At other times, horizontal networks shape events, operating like crowds in ancient city squares. The “square” used to work best in small, face-to-face groups, but digitisation now enables peer-to-peer systems to operate on a massive scale.
> Now, however, a “tower” dynamic is entering the frame. On Wednesday, the Bank for International Settlements (the central bankers’ bank that, in a delicious irony, occupies an actual black tower in Basel) issued a striking report that lashed out at the “square”.
https://www.ft.com/content/9481d93d-c7ef-4749-9916-bc860d538...
Regulation is the strongest moat you can have.
> This means that people in the UK are not allowed to use Binance's services to speculate, or bet
> However, they are still allowed to use the website to purchase and sell crypto-currencies, which is not regulated
So, all is well, just don't bet, speculate. Just buy and sell?
I disagree that citizens need to be “protected” from speculation. Governments should monitor markets and go after scammers when they act, not shut down the markets entirely.
This is a different stance from the America libertarian view of "everyone is responsible for their own actions" mostly because the balance of power is greatly in favour of the companies.
My assumption is most people do not know what they are doing when it comes to trading equities or derivatives.
There are other solutions to your concerns - namely required training explaining risks, an approval process, and not allowing derivatives to be recommended by platforms. Outright bans come from ulterior motives or incompetence.
My stance is not what you have presented. If I had to briefly summarize my stance: let people make reasoned decisions for themselves, and provide safeguards to mitigate the most common accidents.
Say you covert 1000 USD into BTC, and you can convert back without costs. If BTC goes up 100%, you should be able to get back 2000 USD. If BTC goes to 0, you get zero. Leverage is 1 as your return relates 1:1 to the return on BTC.
Now let's look at leverage, say we take a leverage of 100 (not a crazy amount). This means that your return in USD goes 100x the return in BTC, so if BTC goes up 1% you earn 100% (and walk away with 2000 USD). It also means that if BTC goes down 1%, you lose everything.
The other thing is that if you have insufficient margin, the venue close down your position by putting it on the market. If BTC has a short dip and quickly recovers, the venue will have closed down your position at the point where you lost your margin (all your money). This can be exactly the -1%, but depends on the market and the liquidity. If BTC will go up 10% but does so in a noisy way, you might be right but the venue could have closed down your position the moment BTC touched -1% during the random movements.
Eveb worse, say that BTC drops 10% in a very rapid move because of some tough news and panic. The venue puts the orders to sell your position at the -1% mark but because of lack of liquidity these orders get filled at -10% and your loss becomes 10.000 USD. Even if BTC recovers quickly, you keep your loss because the position is closed. That is the problem.
So, in a nutshell, with unleveraged investing you can lose everything, but with leveraged investing you can end up in serious debt.
Losses in the Crypto world are limited to the amount of capital you put in a certain position. This has the side effect of (maybe) not collecting the full amount on the up-side. Pretty much all exchanges do this, since it's almost impossible to go after individuals when they go bankrupt.
Now the popular derivatives frameworks have sizable insurance funds for such events; but clawbacks are a thing in the crypto world.
"WARNING: Late repayment can cause you serious money problems. For help, go to moneyadviceservice.org.uk"
"Representative Example: £250 loan for 3 months at a fixed interest rate of 290% pa. Total amount payable is £321.51"
Or at https://www.ig.com/uk/spread-betting
"71% of retail investor accounts lose money when trading spread bets and CFDs with this provider."
Or even https://www.vanguardinvestor.co.uk/investing-explained/inves...
"Please remember that the value of investments can go down as well as up and you may get back less than you invest."
It's the opinion of British society that citizens _do_ need to be protected in this way.
I would replace 'protected' with 'warned'. You can still do it but as long as you have been informed correctly beforehand then you are taking a risk with the knowledge it could go tits up.
If as the article states the exchange itself is promising certain returns then it doesn’t comply with the law and absolutely is breaking the rules.
Financial products in the UK (and most other markets) can’t advertise any returns that aren’t guaranteed without pretty clear and specifically worded disclaimers.
The FCA isn’t singling anyone out in applying this rule here that I can see.
As per usual, the upshot here is that most crypto holders still think these are all new concepts and don’t realise that the rules are based on hundreds of years of experiences and consequences.
"There's demand for my perpetual motion machine!" is not a good argument.
What they have said is Binance cant offer regulated offerings such as derivatives and options, for which a licence from the FCA is required. Those licenses are given out easily enough to places like plus500 wc. They are essentially gambling, you dont buy securities/assets/stocks/currencies you just bet on price movements of those items.
It sounds like you're defining gambling in terms of tangibility.
Very few people take physical delivery of stock certificates, bond certificates, or currencies. In some sense, their trades are just bets on the value of numbers in a database.
Are silver futures contracts "just a bet on price movements"? What if the contract is physically settled and the buyer takes delivery of the silver bars to their home? Is it still "just a bet"? What if they always sell the contract before delivery? What if instead it's a cash-settled futures contract? It sounds like you don't consider spot fx trading to be gambling. What about FX futures? What about FX CFDs?
What about synthetic financial products with less volatility than some of the more volatile equities. Are those gambling?
Without expressing more detail or nuance, it sounds like you're defining gambling as risks you don't take. There's an argument to be made about exposing retail investors to leverage and high volatility. Though, you don't seem to be making that argument.
The trouble with defining gambling by tangibility is that most of our modern dealings are very abstract, and it basically ends up being what you're used to vs. what feels novel/foreign.
> However, they are still allowed to use the website to purchase and sell crypto-currencies, which is not regulated
Fiat is run by democracies with elections, they're not pay-to-play oligopolies like crypto.
Monetary and fiscal policies can be used to control the health of the economy. It's part of a wide system that also offers education, medical care, transportation, and many other utilities for actual people. Crypto offers what, exactly?
NFTs are worthless garbage nobody can legislate. Digital barcodes. Nation states have robust IP laws to protect and transfer ownership.
Crypto wastes energy. It also wastes human brains that could be solving more pertinent problems.
Gambling on crypto is as dangerous as it gets, and it's best we keep those without money to lose and financial knowledge away from these things. This isn't just a MLM, it's people's lives.
Quantum computing will render all of the blockchain useless anyway.
Crypto is a religion like meme to some and get rich quick scheme for many more.
Crypto isn’t the new fiat, it’s the new gold.
Most of the world does not have a robust nation state ensuring identities and ownership. It’ll be a massive boost to the world economy.
NFTs will enable new interconnected markets that we haven’t even dreamed of yet.
Not all crypto wastes energy, look into Cardano.
Quantum computing will change everything, this isn’t exclusive to blockchains.
There’s far more good that’s going to come out of this than bad with people gambling. The gambling is bringing attention to a major advance for humanity. Any press is good press in this case.
How? My understanding of it is that it's a JSON document that points to a URL (which is just some webserver 99% of the time).
How does this allow anyone to do anything novel that couldn't be done with a centralised database and an API?
This conversation, and entire confusion around the utility of blockchains eerily reminds me of the now infamous challenge to Drew Houston that Dropbox was nothing more than a simple FTP with a share.[0] That's right, but also very wrong, missing the big picture.
You can do that with a central clearing house much easier. In fact, then you'd be covered by US and probably international law against theft.
> This conversation, and entire confusion around the utility of blockchains eerily reminds me of the now infamous challenge to Drew Houston that Dropbox was nothing more than a simple FTP with a share.
You don't know the future, and this is a cop out of an argument.
I'd be willing to bet you $1000 that the crypto market fizzles out in ten years. That it's no bigger than the banks and classic institutions, and that it's no larger than 2x its present market cap on June 28th, 2021. Including any new entrants.
I'd also and separately be willing to bet you $1000 that there's a cryptographic attack (quantum or not) that scares everyone away from crypto. (And I think the US and China already know this.) I'll define "everyone" as a loss of institutional support by at least ten major stakeholders worth over 1B USD. (I think it would be much broader, but I want to define a measurable metric.)
Ten years - want to make that bet?
I mean, I'm a bear on ~everything crypto, but I no longer think it will go away just because it is stupid, useless or wasteful. I don't think it will reshape or replace anything, but I'd almost be shocked if it "fizzled out" in the next ten years.
People are still paying good money for homeopathic remedies; you think they'll wise up about crypto any faster?
The world will never be ready for the scenario that you're predicting in <=10 years. If you truly believe that timeline enough to bet money on it, you damn well should be burying gold, stocking up on canned goods, digging a well, and amassing a stockpile of firearms today. No sarcasm.
There's no need to do this with an HN poster. Crypto is a financial market. There's no end to puts you can buy if that's what you believe. Just buy some puts, and bet on the value of $COIN going down.
So I will take a bet on crypto in 10 years that actually IS in accordance to my actual views. There will still be more than one cryptocurrency in widespread use (endorsed by nation-states or in wider usage) in the world by 2031. I'll call that bet up to $10,000 2021 USD, inflation-adjusted in the year 2031. I've added a way to reach me on my about profile. Reach out and I'll formalize a contract over for you to have notarized and return to me. A cousin of mine is a lawyer so it'll be air tight.
Your second bet is even more vague and useless to haggle over, "scares everyone away", what does that mean, exactly. Too much wiggle room, I don't see a way to nail you down offhand, so I'm not interested in that one.
I wasn't trying to "argue" with the Dropbox reference, I said it simply reminded me of that moment.. as I believe you couldn't be more blatantly and obviously wrong.
Looking forward to taking your money as I have a child on the way that will need it by that point. I'll accept your payment in the cryptocurrency that you'll be using in 2031 as well.
Governments will regulate it. They'll protect banks and financial institutions and jail anyone breaking into them.
They won't give a shit about crypto.
Cryptocurrencies are far more democratic: every time a transaction is submitted the network votes on whether or not it is valid using consensus mechanisms like proof of work or proof of stake.
Fiat currencies are far less democratic: we can only vote for the people that will control them, not for what they will actually do with the currency. In the UK we do not vote for any positions in the Bank of England.
> Monetary and fiscal policies can be used to control the health of the economy. It's part of a wide system that also offers education, medical care, transportation, and many other utilities for actual people. Crypto offers what, exactly?
Monetary and fiscal policies can still operate without control of the currency, see Eurozone members having local policies. All it means is that they can’t arbitrarily print the currency.
> NFTs are worthless garbage nobody can legislate. Digital barcodes. Nation states have robust IP laws to protect and transfer ownership.
You misunderstand NFTs. It is not about intellectual property, it is about property. I can prove I have ownership of any token instantly and trustlessly.
> Crypto wastes energy. It also wastes human brains that could be solving more pertinent problems.
Many cryptocurrencies have negligible energy usage even over the entire network: see Nano. Even in Bitcoin, how is the energy usage a “waste”? It is holding the entire network together.
And with human brains, cryptocurrency research has had very beneficial impact in other fields, see for example Monero’s development of RingCT and Bulletproofs+. And that is ignoring the fact that these brains are reshaping our entire financial infrastructure.
> Quantum computing will render all of the blockchain useless anyway.
Not really. Even if quantum computing was possible now Bitcoin would still be usable. And advancements are being made across all cryptocurrencies to secure them better.
When the votes take money or resources, that's not democratic.
> Fiat currencies are far less democratic: we can only vote for the people that will control them, not for what they will actually do with the currency. In the UK we do not vote for any positions in the Bank of England.
It's still representative democracy. You broadly know what politician's platforms are with respect to taxes, priorities, etc. If they do stuff you don't like, you vote them out.
> Monetary and fiscal policies can still operate without control of the currency, see Eurozone members having local policies. All it means is that they can’t arbitrarily print the currency.
So you lose your largest levers so you can make rich cryptowhales happy. Not good.
> You misunderstand NFTs. It is not about intellectual property, it is about property. I can prove I have ownership of any token instantly and trustlessly.
I don't respect your ownership. Neither does anyone else. When your keys leak - and they will -, you don't own it anymore. I'll much sooner use actual laws with records to buy my next house or car.
> Many cryptocurrencies have negligible energy usage even over the entire network: see Nano.
None of the major cryptocurrencies do despite claiming they would for years. I'm not holding my breath.
> Even in Bitcoin, how is the energy usage a “waste”? It is holding the entire network together.
When it's a network that many of us think is pointless, we're simply scratching our heads at this.
> Monero’s development of RingCT and Bulletproofs+.
More crypto junk and not a cure for cancer.
> And that is ignoring the fact that these brains are reshaping our entire financial infrastructure.
It doesn't need changing! We're increasingly building tools to serve the underbanked, and we need the government to continue with AML, KYC, etc. They serve a very valuable purpose of stopping terrorism, preventing bribery, etc.
> Not really. Even if quantum computing was possible now Bitcoin would still be usable.
If Satoshi's keys, or the Winklevoss keys, or Coinbase keys leak, it's game over forever.
> And advancements are being made across all cryptocurrencies to secure them better.
Better hurry. I don't think you realize the clock is ticking. If quantum beats you, it's game over. The network has no value when the trust and ownership can't be proven. Once crypto can attack keys, parties can't prove they own the address. Even if the network is forked or reverted, it's forever broken.
It is by definition democratic.
> It's still representative democracy
Sure, I wasn’t claiming it isn’t democratic just that it is less democratic.
> If they do stuff you don't like, you vote them out.
Not always, for example the Bank of England’s monetary policy committee is not elected.
> I don't respect your ownership.
Good for you however I don’t actually care whether or not you respect it. For example with concert ticket NFTs the only person that needs to respect it are the organisers, not you.
> When your keys leak - and they will -, you don't own it anymore.
That is intended.
> None of the major cryptocurrencies do despite claiming they would for years.
What do you count as major? Nano is in top 100 by market cap.
> When it's a network that many of us think is pointless, we're simply scratching our heads at this.
I think that retail stock market trading is pointless however I respect its ability to consume energy as part of the free market.
> More crypto junk and not a cure for cancer.
Sounds like you are very prejudiced and have made no effort to research these technologies before calling them junk and wastes of energy.
> It doesn't need changing!
I’m sure nobody thought banking needed changing in the 1900s before it became digitally available. Researching new technology can almost never be bad.
> We're increasingly building tools to serve the underbanked, and we need the government to continue with AML, KYC, etc. They serve a very valuable purpose of stopping terrorism, preventing bribery, etc.
Yes and we still can, and are doing the same with cryptocurrencies.
> If Satoshi's keys, or the Winklevoss keys, or Coinbase keys leak, it's game over forever.
It’s only possible to crack someone’s private key using quantum computing if they have spent from that wallet before (as this is the only time at which an accounts public key becomes public). Most of those accounts you have listed have never spent any of their coins so it would not be possible to crack their accounts.
The keyword in your statement is 'unauthorised'.
The FCA rarely acts to protect UK citizens from potentially dangerous financial products from authorised regulations. The last time I'm aware of, to ensure that retail gamblers cannot lose more than they stake in highly leveraged bets, was pushed through by ESMA, not the FCA.
EDIT: added the post I was responding to, to add context.
The job of the FCA, and of regulations in general, is not to shield people from risk and losses, it's to prevent scams and to make sure people are informed of the rules and of the risks.
Basically the law is not there to prevent people from making bad decisions, it's there to ensure that they can make informed decisions.
Same here in Germany. We don't have access to US-style stonk options, to the great frustration of people seeing US redditors making bank with GameStop while all we had was hodl'ing the stock itself.
Could you clarify please? There are a number of brokers that give you access to US option markets in Germany, e.g. all the intermediaries for Interactive Brokers such as Lynx, Banx, etc. Relatively easy to set up, too.
More like protect their position as regulator. The UK (London) is home to many CFD exchanges which are more scammy (almost 100% scammy) compared to Binance (which is a legitimate exchange that happens to be dangerous to use if you don't know what you are doing).
Exactly, Binance was heavily advertising on London Transport to people who probably don't know what they were doing:
https://news.bitcoin.com/uk-bans-time-to-buy-bitcoin-ads-bus...
Are Rolls Royce (turbine manufacturer and part-time hedge fund) about to start buying forex derivatives from Binance? Seriously, seriously doubt it.
This whole time I was like, "Wow, people here are talking about the FCA the way Americans talk about the SEC. But... Where have I heard of the FCA before?"
Had no idea it was a real thing. (Or that companies should be as terrified of them as they are in the show.)
But of course they are just a platform....Not an enabler.
What will happen to the people that already bought such assets?
Or any other number of Forex sites. These sites usually come with a warning that most users lose money. That you can lose more money than you have staked is the issue, but (I am assuming) the larger possible swings with crypto mean that both the upside and downside is even greater than with traditional fiat currency trading.
The other aspect for the FCA doing this, will be to curtail calls etc by those who get burned and go running to the FCA who can point out they told you so and it is nothing they can do as not under their remit.
But yes, binance operates outside the UK (Cayman islands - which for me is always a red flag for anything finance), so the net effect upon operation will be zero. However, marketing wise - the foundations have been laid.
One upshot of all this I hope is that web adverts (including youtube etc) may have to filter out these crypto investment ones and see UK residence not see any of them. Least that is my dream hope from this.
>> However, they are still allowed to use the website to purchase and sell crypto-currencies, which is not regulated
These statements have since been removed from the article, because they're incorrect.
This isn’t correct. It’s any regulated asset that’s been banned. Well... has always been banned. That includes derivatives but also “cryptoassets”. The distinction comes down to whether the FCA considers the product a “security token”, “e-money”, or currency. The first two being prohibited for sale by or through Binance (or any unauthorized entity) without first obtaining the FCA’s permission as they’re regulated products.
More info about the distinction here: https://www.fca.org.uk/firms/cryptoassets
> Brunt, FCA!
There are plenty of localized exchanges, like Coinbase, who play well with the regulators in certain geographies. This is not the market that Binance cares to cater to, and that's fine IMO. I'll never use Binance because as a US citizen, I don't feel like my deposits are safe there, mostly because US financial authorities love seizing bank accounts from companies they don't like. This is why the only crypto to USD bridge that I'll use is Coinbase.
I feel like this stance is incredibly detrimental to the future of the economy of the country that I live in, but here we are. Hopefully US regulators (and Canada and UK etc) will realize the long term damage that they're doing before it's too late.
My understanding is that this action is only about CFD products on binance, not normal buying/selling Bitcoin.
I find it weird that the UK allows so much access to these scam products in general, but I suppose it fits in with the general accessibility of gambling.
(1) CFD isn't an investment, it's just a side bet on the price of something else. It distorts the market for the underlying (by providing a highly uncontrolled supply of it) at the expense of creating tail risk (e.g. CFD house is fine for years and then poof everyone's money is gone). The damage from this doesn't apply to just CFD participants but potentially the market as a whole.
(2) The particular mechanism of CFDs make them extremely ripe for fraud. CFD contracts are against the house so the house has an inherent conflict of interest with their customers. The CFD house can crunch the numbers, blow some money on the real market (or whatever subset contributes to their index price) to dip the price and wipe out a particular set of customers. Sometimes the index prices are based just on bid/ask -- there doesn't even need to be a real trade at the price. Manipulation is hard to detect, and the whole setup where the house is betting against you is unlike the normal situation for investments.
It's even the case that CFD operators-- in the rare case where they detect a customer that appears to actually have positive returns, maybe due to insider info-- will start passing their orders through to another platform, and even riding along/front running them!
(3) Specific CFD products usually have unreasonable terms such as absurd leverage where market volatility almost guarantees the customer will be wreaked. In theory some of this risk could be regulated out, but one can always construct a new product.
So I think sure, you could have an honest CFD house with good controls and products with well shaped risked, and so on... and mitigate a lot of the problems but the incentives are all wrong. And worse, because much (though not all) of the CFD appeal is essentially to a gambling market, the customers actually want the highly volitional highly risky options, they want platforms that will be cheap until they implode, and so on. So in the long run, you shouldn't expect CFD operations to end well.
Other products like ordinary options, or just regulated margin, let you make more complex trades without creating the bad incentives or market risks.
That large part of the financial system is glorified and useless gambling designed to extract rents by intermediaries is a matter of record [0]. Regulators have no problem with that, provided their rather arbitrary and self-servingly generous red lines are respected.
So what is happening now is that new information technology (faulty and immature at best) is being used by cunning operators to tap into that ingrained behavioral pattern outside their purview.
Yet what spoils the fun is the sense that (somewhere in a parallel universe) all the new digital gadgetry could somehow be used to make our economies more robust, more functional, more equitable, more sustainable,... more real and less financialised.
Financialization is not necessarily about useless finance taking bigger and bigger roles in the economy. Finance can be useful, and can get very complex, and so it could make sense that it became a big part of the economy. Now, I cannot say for sure that the finance industry is useful enough for it to be that big a part of the economy as it is, but I'm open to the idea (also open to the opposite idea). My point is that what you portray as a "matter of record" is a biased interpretation of what financialization is, not consensus (though may still be true).
There is obviously a bit of subjectivity in defining "real" and "useful". There is also an intermediate gray area of so-called risk management (derivatives, securitisation etc) which can easily mutate from useful to disastrous depending on the quality of regulation.
But when I look at the crypto universe (from the ICO era till today) I have no doubt what it resembles...
If intermediaries get a cut, wouldn't that make the games negative-sum?
Obviously there are lots of ways this pretty story breaks down, but I think the "just moving bits" reason isn't that strong a criticism.
Actually I'm always surprised by BTC
I'm just picturing Brunt from ST:DS9 walking in and shutting them down.
Now whilst cypto is another currency, it is one that is very volatile and as we have seen, anything that volatile in a currency is always never good for the majority.
Also to have any impact, such crypto's would need to become more widespread and whilst in geek land we may view things as common usage, your average citizen probably at best only just aware of their existence. Indeed I'd hazard a guess that most people in any country have never held currency beyond their local offering (though the dollar sure does come close and that in some countries).
In what sense can it be a useful currency?
Eventually, when everything is traded and priced in bitcoin, bitcoin becomes an objective unit of value. At that point bitcoin is the only thing that is not volatile, and volatility of everything else is measured against it.
Volatility is an an inherent property of an asset/currency/whatever(stddev of (log)returns), as long as you have a fixed and distinct numeraire.
Sure, you can argue that bitcoin may _be_ the numeraire one day, but what's the path towards that when it's so useless as a currency presently?
Either it's good as a currency, or it's good as a savings vehicle.
You seem to be confused about which line you're pushing
Of course there is, for example it would be necessary for it to be useful as a medium of exchange. Which, bitcoin certainly isn't.
I can't purchase, for example, >50% of the basket of goods that comprise the CPI with bitcoin.
Sure, you can argue that anything which can facilitate more than 0 exchanges with more than 0 counterparties is, at least ephemerally, a currency. But if you're arguing that, you've already lost.
Bitcoin is similar to gold in this regard, with the difference that the total amount of gold is practically unlimited and gold is mined with an unpredictable schedule.
Is it? How would you go about banning crypto completely such that nobody uses it?
Then whenever you trace it to one of your citizens, you throw them in jail. This would destroy the exchanges, and prevent most people from participating in it (even as a curio).
It would be ultra easy to destroy crypto. If the US, Europe or China bans it for real, it will be worthless overnight. Nobody cares more about crypto than pissing off any of them.
I think all major countries are gearing up for this and it will happen eventually.
They have million man armies, jets, tanks, millions of bureaucrats, leading edge development programs, hypersonic missiles, nuclear weapons, atomic energy, etc - but they "couldn't stop crypto!", a ledger where all transactions are...explicitly public?
Like come on. They have entire departments devoted tracing transactions for tax avoidance, but they're helpless against...a public list of transactions? No way.
I think the big issue is just the scale of the market. They _could_ do it with enough funding and manpower, but I think it would cause a Streisand effect in that privacy-centric tokens would become more popular.
It's better for governments to contain it and not appear to be against it so that development focus doesn't shift to Monero-like tokens.
You can design a ideal token - the Platonic model of a crypto. Totally secure, totally anonymous. Assume it perfectly hides all information about all users.
And they could easily still destroy it - they'd just attack whoever offered cash for that token, who they would uncover by tracing regular cash (Dollars/Euros/Rinmenbi). There is no technical solution that can avoid actually avoid tracing when you turn the crypto into goods and services - unless both parties are willing to deal in that token exclusively AND not to keep records of any of their dealings. Which makes it only useful for illicit activities anyway - you're not going to get your kitchen remodel done and everyone is going to agree to get paid in your token and not report it to the government while also somehow hiding the fact that you're having people show up to your house to do work. It's just not practical. SOMEONE on the kitchen remodel team is going to go "Nah, I want...dollars?".
There's an XKCD about this:
^ They'd just drug the people involved and hit them with a wrench until they gave them the answers. Developing any of these "cryptos" is a total waste of time, and has been since day one - eventually people will figure this out and the price will plummet.
...in my opinion, obviously.
I think what's going to really happen is that the US is going to release a digital currency, and it will gain real adoption, and which one is Grandma going to use? Real US-backed E-bucks or... some trinket coin she doesn't understand that only allows her to buy heroin and contract killers? I mean maybe Grandma likes to party and has made a lifetime of enemies and it's a perfect fit, but I...doubt it?
Monero keeps no record of headers of each transaction, so granted it might be a bit interesting on a tax form how you got 100m in $Y currency but the crypto to $Y fiat off-ramp would be hidden. Also, there's BTC ATM's, people willing to meet in person for a crypto/cash exchange and plenty of people using crypto to provide liquidity for other base pair swaps.
Also, i don't believe crypto is ever going to be used for the masses. But it has very interesting properties in finance like POS, sythetics, etc. These are REAL uses (read economic gains) So, i may not ever use it for paying for my kitchen remodel but i will HODL it and see my fortunes rise.
Lastly, Multi-level marketing is a 'Meme' in the purest definition. It's why it has popped up in so many manifestations. Whether it's a good Meme or not is a different question but is the reason i believe crypto is here to stay. it's a brain virus with the implicit understanding that if you own crypto, it behoves you economically to get more people into it. If you don't own it and hate it, you are only passively 'Hating it', in a more dismissive posture than anything. This one sided take is the reason crypto will continue to eat traditional finances lunch.