New CFTC Guidance to Make Life Tough for U.S. Crypto Margin Platforms

A new guidance document issued by the Commodity Futures Trading Commission (CFTC) could be detrimental to the growth of crypto derivatives platforms in the United States. Exchanges with futures and options that aren’t CFTC regulated must mandatorily allow customers the option to take delivery of the underlying, per Bloomberg, March 26, 2020.

Crypto Exchanges in the Spotlight

After operating without much regulatory interference, various statutory bodies in the United States are coming after cryptocurrency exchanges in a bid to clamp down on money laundering and create rules for the industry. The CFTC has now mandated derivatives platform in the United States that aren’t regulated by the CFTC to allow customers to take delivery of the underlying.

Crypto derivatives, barring Bakkt, are all cash-settled contracts, called CFDs (cash for difference). This new rule will force them to change the way they operate. It is unknown what the reaction of these exchanges are and whether they will implement delivery or try to become regulated. Either way, the derivatives market in the United States is set to change.

The CFTC believes that Bitcoin and Ether are commodities, not securities. So trading will be legal, and overseen by the CFTC, but the new derivatives contracts must fall in line with the agency’s new guidance.

The Start of Regulation?

For years, the crypto industry has waited to catch the attention of global regulators so the market could bask in newfound certainty. While regulators have turned a quick eye to cryptocurrency, it isn’t nearly big enough for them to sit down and try to formulate rules.

Since crypto is still infantile, with a total market cap that cannot even rival Apple, regulators are taking their own sweet time to tackle the industry’s regulation. However, we have seen small regulations, such as this guide from the CFTC, to help offer a better degree of certainty.

Rather than sitting down at a table and setting global or national regulation for cryptocurrency, we may just say a number of small steps come into play to shape the way the industry works. Either way, better regulation is necessary to attract a wider scope of participants, including larger institutions.