The European securities and markets authority (ESMA) decided to extend the restrictions on contracts for difference, including those based on cryptocurrencies.
A contract for difference is an agreement between a seller and a buyer that stipulates the difference between the current value of the asset and its value at the time of expiry of the contract. If the difference is positive it is paid by the seller, if negative — the buyer.
These restrictions, which entered into force on first of August will be extended for three months, starting from the first of November. The ESMA statement, this step was taken due to the need for investor protection, which is tied to the availability of such contracts to retail customers.
Before the first restrictions were imposed by ESMA, , the leverage limit for cryptocurrency CFDs was at 5:1. However, in August the ratio has changed to 2 to 1, in connection with which cryptocurrency investors should have at least half of the amount of the contract at its conclusion.
In January, ESMA published a "Request for evidence" which considered a possible interference with digital coin CFDs. The document also noted that the volatility of cryptocurrencies adversely affect the protection of investors.
In March, ESMA has increased requirements relating to contracts for difference. The organization explained it this way:
"Given the specific characteristics of the cryptocurrency included in the asset class, we will closely monitor the market of financial mechanisms offering entrance in the cryptocurrency space. These include, for example, contracts for difference. In the future, ESMA will consider the need to adopt more stringent measures."
Other EU regulators have also treated crypto investing with caution. For example, in February, the European Supervisory authorities (ESA) has warned investors about the extremely high risks of cryptocurrencies, which demonstrate all the signs of a price bubble.
Different European Union countries are seeking ways to approach crypto derivatives. For example, the French stock market regulator urged to regulate cryptocurrency assets in accordance with the laws of the European Union, and to prohibit their advertising on the Internet. Austria suggested the regulation of crypro assets by the rules of trade applied to gold. The Supervisory authorities of UK, in turn, began to demand from businessmen of permission to conduct transactions with cryptocurrency derivatives.