Retail punters now have another way to make risky wagers on cryptocurrencies.
CMC Markets Plc, a London-based brokerage controlled by Peter Cruddas, has joined rivals including Plus500 Ltd. and IG Group Holdings Plc in allowing amateur investors to make bets on Bitcoin and Ethereum, two of the biggest digital coins. Retail traders can use contracts-for-difference, a form of derivatives largely banned in the US, and borrowed funds to inflate the size of their bets, the firm said in a statement.
“Our offering isn’t directly linked to competitor profitability or investor demand,” David Fineberg, Group Commercial Director at London-based CMC said by phone. “We have launched it at time when we are comfortable,” he said referring to factors such as regulatory clarity and lower crypto volatility.
The move reflects the pent-up demand from ordinary investors to trade digital currencies after wild swings over the past year made headlines and brought the nascent asset class into the public consciousness. Despite warnings from regulators and stricter rules to protect investors, companies are pressing ahead where they see opportunities.
Europe’s top markets regulator has proposed new rules starting next month that limits leverage to two times the deposit for retail investors trading in cryptocurrency CFDs. So-called contracts-for-difference are derivatives that allow investors to wager on the price of stocks, currencies, and commodities without owning them.
CMC’s website itself carries a warning that cryptocurrency spread bets and CFDs are “extremely high-risk speculative products” and that crypto volatility combined with leverage could lead to significant losses.
The move is a departure for Cruddas, CMC’s founder and chief executive officer, who has held back from offering cryptocurrency derivatives to anyone, let alone retail investors, even as rivals pushed into the volatile products. His reticence was in line with CEOs at other finance firms, including Barclays Plc’s Jes Staley, who have expressed fears about the links between digital currencies and illicit behaviour.
CMC began offering crypto CFDs in March to clients classified as “professional,” who must have a combination of trading experience, employment in the financial industry or a portfolio greater than EUR 500,000 ($582,000). Even that triggered a “cultural clash” because selling “highly-volatile, gambling-type products” to customers went against the grain, Cruddas said on a 7 June call with analysts.
“We felt that the product was too volatile for our retail client base,” Cruddas said on the call. “We’re not looking for the masses to ramp up their crypto positions. What we’re looking is for long-term, sustainable income for our investors.”
The new European rules clarify what CFD firms are allowed to do with crypto products, according to Paul McGinnis, an analyst in London with Shore Capital who has a buy rating on CMC shares.
“They just want to offer something that their competitors now offer,” said McGinnis in a phone interview. “There’s no real reason not to; it’s just catching up with the others.”