In October, the Australian Securities and Investments Commission announced that potential restrictions may be applied to the Contracts For Difference (CFD) industry in Australia after research shows that most investors lose large amounts of funds speculating on this market.
For those who don’t know, CFDs are basically contracts for a specific asset. Whenever a person invests (buys) a CFD, of let’s say Bitcoin, they don’t necessarily possess this asset. They simply have a contract that confirms their ownership of the asset. The contract has a specific deadline which when expired, will automatically sell itself for the current market price of the asset. This could be an extremely profitable, or extremely costly position for the trader.
The only reason why investors go for CFDs in the first place is due to the increased leverage that they can apply. For example, a person investing $100 in a Bitcoin CFD, would get somewhere around $5,000 trade with the traditional 1:50 leverage. This increases the accessibility of the market to the smallest of traders, thus exposing them to unnecessary risk.
It is exactly this risk that the ASIC is planning on diminishing, by reducing the maximum amount of leverage brokers can offer to their customers.
The ASIC is definitely not the first or the last regulator to make this decision. A country-wide, or in this case union-wide regulation for CFDs was first adopted by ESMA (European Securities and Markets Authority), which reduced the amount of leverage on cryptocurrency CFDs to 1:2, ultimately making them a useless asset to invest in.
Furthermore, the ESMA completely banned binary options, which are also a popular but even riskier way of investing in cryptocurrencies. The ASIC has voiced a similar opinion about binary options and will most likely be placing a ban as well.
Many crypto traders in Australia believe that this is a coordinated attack on cryptocurrencies when in reality it’s going to boost the local crypto market much more.
This Regulation Will Help Cryptocurrencies in Australia
The primary reason why this will help cryptocurrencies to gain more popularity in Australia is that it will drive attention from CFDs, towards actual crypto exchanges that deal with real cryptocurrencies.
Thousands of crypto CFD investors will start funneling into crypto exchanges that will become superior in terms of leverage offered on these assets, usually around 1:10, and thus increase the volume of cryptos traded.
And we all know that crypto prices mostly increase based on volume, as that’s what whales usually pay attention to the most.
According to some industry outsiders, this will be an extremely healthy boost towards their business models as well.
As you may be aware, Australia is one of the most crypto-friendly countries out there. Maybe not on the level of Malta, but still in the top 10 at the very least. This means that crypto adoption has a lot of potential in this region, and is already on its way to perfection.
Things like cafes, online stores, and even real estate payments are able to be processed via crypto transactions. However, the industry responsible for the most volume, besides crypto exchanges themselves, is the Australian gaming sector.
It’s no secret that real money roulette casinos for Australia are one of the biggest attractions in this day and age. Investors that don’t really know where to store or what to do with their new-found wealth through cryptos, decide to use them for entertainment or any kind of liquidity source they can find.
Therefore, having crypto CFDs “disabled” in the country, would ensure the increase in crypto investor numbers. This subsequently means that the large sums of wealth currently involved in crypto CFDs will directly translate into cryptos themselves. Because of this, there’s a large chance that Aussie crypto whales will start diversifying their crypto portfolio in various other industries, thus supporting the adoption of the blockchain even further.
As long as crypto exchanges in Australia can remain competitive in terms of the leverage they offer on cryptocurrencies, they would be guaranteed a massive influx of new customers the moment the law is passed.
What Other Changes to Expect from the New Regulation
Crypto CFDs are not the only CFDs that will go through this change. Things such as CFDs on Forex, stocks, commodities and various other assets will also have to tank the leverage they offer to retail clients.
It’s likely that Forex will go down to max 1:30, stocks to max 1:15, and commodities to max 1:10.
What this means is that CFD brokers that are currently operational in Australia, may find it very hard to continue with such restrictions, thus will start looking for alternative methods in the financial industry.
Considering that operating a Forex or stock brokerage is connected to exorbitant amounts of investments and costs, it’s quite likely for new crypto exchanges to start emerging in the Aussie market.