Singapore To Introduce New Crypto Derivatives Regulations

News, Opinion, Regulation | November 19, 2019 By:

The Monetary Authority of Singapore (MAS) has announced that crypto derivatives can no longer remain in regulatory scrutiny and require a legal classification as soon as possible.

Such talks were not seen with the regulator in the past, which is why it came as quite a surprise for many crypto companies. According to the report, the implementation of these regulations on crypto derivatives specifically is mandated by the ever-so increasing volume of them being traded on the global markets.

According to MAS’ calculations, the volume ranges between $5 and $10 billion on a daily basis, outperforming spot trading by more than 10 times. Considering that hedge funds and large investment companies are starting to become more and more interested in these platforms, there was no way of avoiding some kind of regulations on institutional trading for crypto derivatives.

The United Kingdom going down the same path

A similar case can be seen in the UK as a public panel has been open about the legal classification of cryptocurrencies for the future.

The arguments remain the same as UK politicians, as well as businessmen, fear that cryptos have the capacity to become popular out of control, thus costing the government quite a lot in uncollected taxes and regulatory norms for the future.

One of the most important changes would go to popular cryptocurrency exchanges in the UK after Brexit is finalized. What this means is that legally defining cryptos will help UK investors utilize the European markets and vice versa.

But the regulatory scrutiny remains the same, thus costing the government extra overheads as well as the company owners some additional auditing costs.

Why is there so much interest in crypto derivatives?

Crypto derivatives are not necessarily cryptocurrencies themselves. The term itself is used to encompass things such as cryptocurrency CFDs, or Bitcoin futures. The reason why it’s so in-demand for crypto traders is due to the significantly higher leverage for these instruments.

For example, Bitcoin futures can sometimes go up to 1:100 leverage, thus giving the trader the opportunity to make 100 times more on their trade than on a regular crypto platform. The only issue with crypto derivatives is that they are not a representation of crypto ownership. What this means is that people trade crypto contracts rather than cryptos themselves, thus exposing the actual crypto market to a significant volume loss.

With large hedge funds and investment companies becoming more and more interested in these types of trades, the more regulatory scrutiny will it cause in this segment of the market. While cryptos themselves are still without well-defined legislation due to classification issues, crypto derivatives are very easy to classify and thus install a comprehensive regulation on it.

It’s unknown whether specific guidelines will discourage companies from delving into cryptos even further in the future, but many say that it’s likely to happen the other way around.

With a market as large as Singapore, we could expect dozens of crypto trading companies to simply move into the country and start doing business, thus classifying the city as yet another crypto hub.