ESMA reminds of risks to crypto trading as EU prepares regulation

Rick Steves

“Crypto-assets come in many forms but the majority of them remain unregulated in the EU. This means that consumers buying and/or holding these instruments do not benefit from the guarantees and safeguards associated with regulated financial services.”


The European Securities and Markets Authority (ESMA) has highlighted the risks linked with investments in non-regulated crypto-assets.

Reminding consumers about risks, ESMA recognized that so-called virtual currencies such as Bitcoin continue to attract public attention, but some crypto-assets are highly risky and speculative. Consumers must be aware of the risk of losing all their money invested.

“Crypto-assets come in many forms but the majority of them remain unregulated in the EU. This means that consumers buying and/or holding these instruments do not benefit from the guarantees and safeguards associated with regulated financial services”, said the announcement, which added that the European Commission has recently presented a legislative proposal for a regulation on markets in crypto-assets.

The proposal is not yet EU law nor does it mention crypto CFDs, but if the European bloc takes the United Kingdom as an example for regulating CFD products, then the European trading industry should buckle up.

The UK FCA’s ban on crypto CFDs took the industry by surprise, but the regulator estimates that consumers will save around £53m from the ban on these products.

According to the financial watchdog, these products cannot be reliably valued by retail consumers because their underlying assets have no intrinsic value, but also because of the prevalent market abuse and financial crime, extreme volatility, inadequate understanding by retail consumers, and lack of legitimate investment need.

Professional traders, on the other hand, are not subject to the prohibition of crypto CFD trading.

Many investors choose crypto CFD products instead of buying cryptocurrencies in dedicated exchanges because of the nature of the contracts for difference. Not only they allow trading with leverage, but investors can go long or short without actually holding the asset.

The exposure to the price of the cryptocurrency is thus detached from the security risks associated with storing it and the counterparty risk from the exchange.

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