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Trading firms are milking the cryptocurrency boom – but for how long?

by | 14 Feb, 2018

Where now for a crypto market facing ever tighter regulation?

The online trading company Plus500 just posted double-digit growth for 2017, mainly owing to popularity in its cryptocurrency derivatives. Riding the wave of the move into the mainstream for digital assets, the firm showed a 70 per cent rise in net profits to just under $200 million in 2017, against $117.2 million in 2016.

However, can its stellar run continue? Doubts may surface due to a tightening of regulation on the sector. News broke yesterday that 7 of the UK’s leading cryptocurrency firms (including Coinbase and CryptoCompare) have banded together to create a new self-regulatory trade body named CryptoUK, with the intention of providing more legitimacy to the sector, as well as improving transparency.

The ECB and Bank for International Settlements have also called for a reigning in of the industry and warned investors they could lose their cash, but given the explosion of interest in the asset class over the last 2 years, these warnings will probably go unheeded by most.

On top of these institutions, there’s been no end of reputable investors and big names within the banking sector (like JPMorgan’s Dimon) who denounced the asset class as a sham. Until the end of 2017, the coins kept throwing off these words and rapidly gained in value, defying the naysayers repeatedly. That was until the correction began, which saw the king crypto Bitcoin losing over $44 billion from its value since the start of 2018.

The price has stabilized in recent days, but another dip may be around the corner thanks to more scrutiny from lawmakers stateside. Trump Treasury Secretary Steve Mnuchin is bringing together federal government agencies to coordinate regulation of cryptocurrencies, according to the chairmen of 2 financial regulatory commissions.

One of these, J. Christopher Giancarlo (chair of the CFTC) said: “The Treasury Secretary has been out in front on this. He’s formed a virtual currency working group of ourselves, the SEC, the Fed.” Input from the Federal Reserve indicates just how seriously the U.S. government is taking the matter. Mnuchin said of cryptocurrencies: “We wan’t to make sure they’re not used for illicit activities”. Given the history of the coin’s use (the reason so many people use Bitcoin for transactions is because it’s untraceable and not linked to monetary authorities), they have already missed the boat here, but his words indicate that they want to have more direct input in future, which may spell bad news for crypto investors.

Related: South Korea weighs further crackdowns on the crypto space

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ALL RIGHTS RESERVED © INVSTR LTD. 2018

Risk Disclosure:
Invstr is a technology platform, not a registered broker-dealer or investment adviser. Invstr does not offer its own recommendations of any security or provide its own research to any user regarding any security transaction or order.
Please note, investing involves risk and investments may lose value. Past performance does not guarantee future results.
Brokerage services are provided by the following:
US-traded securities, including fractional trading, are provided to Invstr users by DriveWealth LLC, a regulated member of FINRA/SIPC. DriveWealth may not establish investment accounts to residents of certain jurisdictions. For more information, including disclaimers, risk and transaction fees click here.
India account traded securities are provided by SIC Stocks & Services PVT Ltd. SIC does not make any personal recommendations to buy, sell or otherwise deal in investments. Investors make their own investment decisions. The services and securities provided by SIC may not be suitable for all customers and, if you have any doubts, you should seek advice from an independent financial adviser. For more information and disclaimers, click here.

 

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