Are retail investors no longer playing with cryptocurrencies? eToro executive: Retail investors are not interested in derivatives

The UK Financial Conduct Authority (FCA) announced last year that it would ban all retail cryptocurrency derivatives, but eToro, one of the world's largest cryptocurrency derivative platforms, seems unfazed. A senior executive at eToro stated that he would not lose sleep over the proposed ban in the UK.

• eToro claims that retail investors are focusing on spot trading
• Coinbase reintroduces margin trading

Iqbal Gandham, who has been serving as the Managing Director of eToro UK since 2016, recently mentioned in an interview that the UK's decision to ban all cryptocurrency derivatives may only have a minimal impact on eToro's business.

eToro boasts over 10 million users globally and is one of the largest trading platforms worldwide. Gandham noted a shift in the behavior of retail investors towards valuing tangible assets like cryptocurrency assets and understanding the importance of transferring them to personal wallets. Gandham stated:

Two years ago, people did not understand the difference between real crypto assets and derivatives; they just thought they were buying Bitcoin. Now investors have their own wallets and can transfer cryptocurrencies. They know that if they cannot withdraw Bitcoin, it means they do not hold tangible assets.

Decision on Ban to Be Made This Year

According to reports, the UK Financial Conduct Authority (FCA) indicated last year that it was "considering" banning cryptocurrency derivatives, including Contracts For Difference (CFDs). FCA believes that retail investors are not suitable for such products as they cannot effectively assess the value and risks of certain crypto derivatives or index investment securities.

Some regulated platforms (such as Hargreaves Lansdown) have already banned trading in cryptocurrency derivatives, but FCA is expected to make a final decision in the second half of this year.

It is understood that eToro opened up the purchase of physical crypto assets to users in September 2017. Gandham reiterated that there is no need to be overly concerned and stated:

If you had asked me in 2016 or 2017 what impact the ban would have, I would have said it would be significant, and we would need to change our business direction. But most of eToro's customers now buy physical cryptocurrencies rather than any crypto derivatives.

Gandham mentioned that eToro is moving away from the derivatives market to cater to retail investors.

Spot Trading Shifts to Derivative Trading Market

Although Gandham is very confident in the spot market, major traditional financial institutions have been involved in crypto derivatives, including traditional exchanges like CME Group, Bakkt under Intercontinental Exchange, as well as cryptocurrency exchanges like Binance, OKEx, and FTX.

In addition, Coinbase's subsidiary, Coinbase Pro, reintroduced 3x margin trading after 2017, as announced in their Blog.

Margin trading is available to both retail and institutional traders but is only offered to residents in 23 regulated states and requires active status on Coinbase Pro (measured by recent trades, balances, and deposits/withdrawals).

Compared to exchanges like Bitmex and Binance offering leverage of nearly a hundred times, Coinbase appears relatively conservative, but it showcases the importance mainstream exchanges place on such derivatives.

As major institutions aggressively enter the crypto derivatives space, eToro appears steadfast in its approach. Whether their business direction is on the right path due to their unique vision remains to be seen and can only be proven over time.

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