“Crypto derivatives exchanges exist in regulatory limbo. A bit like Schrödinger’s cat: neither fully regulated nor unregulated. This ambiguity is being exploited in dangerous ways. I’m not talking about actually buying and selling cryptocurrency, by the way,” Kamath said in a tweet on Wednesday.One of the pitfalls of crypto derivatives trading is that there is nothing investors can do if something goes wrong. “The first risk of unregulated platforms, of course, is that you can’t do anything if something goes wrong,” he said.
Also read: The return risk of unregulated digital gold: you lose 6% the moment you buy it, explains Zerodha’s Nithin Kamath
“The other big problem with crypto F&O is that you have no idea who is on the other side of your order. In many cases, the platform itself can be the counterparty for all trades, such as dabba trading or CFDs. If the platform is the house, incentives are distorted. It is good for the platform if the customer loses money because every customer gain is the platform’s loss,” the tweet said. Also read: Does the urge to act get the upper hand? Zerodha’s ‘Kill Switch’ is a cure, says Nithin Kamath“To make matters worse, these platforms offer leverage of 100 to 200x. At that level, even a small move is enough to put you out of business. Given the volatile nature of crypto, this is virtually guaranteed,” the founder and CEO added.
The lack of regulatory clarity on crypto derivatives is not good for anyone in the long run and needs to be resolved, he believes.
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