One of the largest cryptocurrency liquidity providers in the UK has been given regulatory approval from the Financial Conduct Authority (FCA) to launch a cryptocurrency-backed contract for difference (CFD).
CFD’s are a type of derivative instrument that offers investors the ability to bet on market movements without having to purchase an asset directly. The move marks the first time the regulatory body has given approval for such an instrument in the cryptocurrency industry, although many firms have been offering similar services for some time now.
B2C2, the firm that was awarded the license, was founded in 2015 and quickly became a leader in electronic over-the-counter (OTC) trading in the cryptocurrency space. In October last year, the firm partnered with crypto-trading and risk management platform Caspian in an effort to give their customers greater exposure to digital assets.
CFD’s have previously been offered by firms operating offshore but have come under stricter regulatory controls recently due to the dangerously excessive leverage they were offering. The FCA’s decision to award such a license at this time is surprising considering it is currently investigating the possibility of an outright ban on cryptocurrency derivatives. The FCA has cited high volatility and a lack of transparency as reasons for why it believes crypto derivatives are unsafe for retail investors.
Former Goldman Sachs trader and CEO of B2C2, Max Boonen, says the new product will be aimed at large investors like hedge funds, rather than the retail market. Unlike previous CFD offerings, B2C2’s product will be tailored to the customer and dependent on credit quality.
The news is further evidence of a growing interest in cryptocurrency from institutional investors. Recently, the financial services giant Fidelity Investments announced its plans to launch a Bitcoin Custody service in March this year. Should the service become available it will open up secure Bitcoin storage to Wall Street and attract a huge amount of fresh liquidity to the cryptocurrency market.